W A J A X 2 0 2 3
A N N U A L R E P O R T
2023 Financial Highlights
In 2023, Wajax generated record revenue and earnings,
driven by strong growth across all business lines and
operating regions, underpinned by sound fundamentals
across many of the sectors we serve. This exceptional
financial performance was supported by solid growth
in heavy equipment sales and continued robust
improvement in Engineered Repair Services (“ERS”) and
Industrial Parts (“IP”) revenue. A clear focus on driving
improved margin accounted for the excellent bottom line
results. Wajax exited 2023 with a robust backlog(1) and
strong balance sheet, allowing us to pursue both organic
and acquisitive growth again in 2024.
2023
2022
Revenue (millions)
$2,154.7
$1,962.8
Adjusted EBITDA(2) (millions)
$197.4
$165.9
Adjusted Basic Earnings Per Share(2)
$3.88
$3.26
Revenue ($ millions)
Leverage Ratio(2) (%)
1,481.6
1,553.0
1,422.6
1,637.3
1,318.7
2,154.7
1,962.8
2.45
2.60
2.28
2.17
1.98
1.29
1.13
2017
2018
2019
2020
2021
2022
2023
2017
2018
2019
2020
2021
2022
2023
Earnings and Adjusted Basic Earnings Per Share(2) ($ millions)
Net Earnings and Adjusted Net Earnings(2) ($ millions)
3.88
3.77
3.38
3.26
1.54
1.40
1.82
2.02
1.98
2.10
1.75
1.58
2.50
2.41
83.5
81.0
72.4
69.8
53.2
51.5
39.9
35.9
41.9
39.5
35.1
31.7
30.1
27.4
2017
2018
2019
2020
2021
2022
2023
2017
2018
2019
2020
2021
2022
2023
Basic earnings per share
Adjusted basic earnings per share
Net earnings
Adjusted net earnings
(1) “Backlog” does not have a standardized meaning prescribed by GAAP. See Management’s Discussion and Analysis, page 21.
(2) “Leverage ratio”, “Adjusted EBITDA”, “Adjusted basic earnings per share” and “Adjusted net earnings” do not have standardized meanings prescribed by generally accepted accounting principles
(“GAAP”). See Management’s Discussion and Analysis, page 21.
Forward-Looking Statements and Information: This Annual Report, including the accompanying Management’s Discussion and Analysis, includes forward-looking statements and information that is
based on Wajax’s current beliefs, expectations, estimates and assumptions in light of information currently available. Actual results, performance and achievements may differ materially from those
anticipated or implied in such forward-looking statements or information. Please see page 42 for a discussion of the risks and uncertainties related to such statements and information.
With 119 branches and over 165 years of experience offering world‑class brands,
unwavering customer support and advanced technical expertise to diverse industries,
Wajax is able to provide solutions that help customers nationwide get more done –
efficiently and effectively.
B U I L D I N G T H E B U S I N E S S T O G E T H E R
In 2023, Wajax:
Grew its team to more than 3,200, while delivering
strong safety results.
Continued to benefit from the enhanced direct
distribution relationship with Hitachi and Hitachi’s
renewed commitment to the North American market.
Completed two tuck-in IP/ERS acquisitions, adding an
Alberta-based custom electrical and instrumentation
business and a Northern Ontario-based supplier of
hydraulic and pneumatic equipment, and offering full
maintenance, repair and replacement services.
Exited the year with a backlog of $554 million(1).
Announced a 32% increase in its quarterly dividend.
Contents
Message to Shareholders
Wajax Purpose and Values
Wajax Strategy
Heavy Equipment
Industrial Parts and
Engineered Repair Services
Sustainability at Wajax
Message from the Chair
Management’s Discussion
and Analysis
Management’s Responsibility
for Financial Reporting
Independent Auditors’ Report
Consolidated Financial
Statements
Notes to Consolidated
Financial Statements
Additional Financial Information
Corporate Information
Locations
2
4
6
8
10
12
20
21
43
44
46
50
70
71
72
(1) “Backlog” does not have a standardized meaning prescribed by GAAP. See Management’s Discussion and Analysis, page 21.
Wajax 2023 Annual Report 1
Message to Shareholders
During its 165th year in business, Wajax delivered record revenue and adjusted earnings,
up 10% and 19%, respectively, and finished the year with a robust backlog that was
up 18% over last year. As a result, we generated strong value for shareholders, which
included a 32% increase in the quarterly dividend announced early in the year, followed
by a further 6% increase in early 2024.
Our strong financial performance this past year, coupled with a $100
million increase in our credit facility, leaves us feeling optimistic about
our future as we look to build and evolve for the next century and
beyond, guided by our Purpose – “Empowering People to Build a Better
Tomorrow”, and our core values:
We commit to safety and well-being;
We develop potential and expertise;
We deliver an exceptional experience together;
We build lasting relationships; and
We strive to continuously improve.
Continuing to Build a “People-First” Company
The safety, well-being and engagement of our 3,287 teammates is
the foundation of our business that ensures that both our people and
business can thrive together. Our growing success in terms of putting
people first was reflected in an employee Net Promoter Score® of +35
for 2023, building on a steadily improving trend recorded in prior years
(+25 in 2022, +21 in 2021 and 2020, +10 in 2019). In 2023 we
successfully piloted multiple tools to modernize our health and safety
programs and through our long-running focus in this area achieved an
excellent TRIF score of 1.01.
As an organization, we understand that attracting and retaining great
people – and helping them thrive in their careers – can be challenging,
especially in the tight labour market that industry is seeing nationwide.
In 2023, we made further significant improvements in candidate
selection processes, on-boarding activities, benefit programs, including
a revised healthcare spending account, and flexible working, which
resulted in improved retention. We also updated our training programs
available for all teammates as part of our approach to safety and
well-being. At Wajax, we have taken significant strides forward in terms
of promoting diversity and inclusion in our workforce. In 2023, we
established our first Employee Resource Group, Women of Wajax, and
Ignacy (Iggy) Domagalski, President and Chief Executive Officer
we continue to partner with groups like Catalyst and Jill of All Trades,
as well as Indspire, to support women and indigenous people in the
workforce, respectively.
Earlier in the year we created a Chief People Officer role which is now
occupied by industry veteran Mark Edgar. More recently, we continued
to strengthen our senior leadership team. With Steve Deck, our long-
time Chief Operating Officer and SVP, Heavy Equipment announcing
his retirement, we subsequently appointed André Dubé as SVP, Sales
and Operations and Brian Deacon as SVP, Category Management as
part of the planned transition. Both have an extensive and exceptional
track record at Wajax and have held progressively senior roles with us
over many years. During the year we also promoted three regional vice
presidents spanning our three operating regions (East, Central and
West) to support a focus on maximizing existing customer relationships
and accessing new opportunities, particularly in the Central region,
which experienced strong growth in 2023. More broadly, we rolled out
Personal Development Plans to leaders across the organization, actively
encouraging them to apply for internal opportunities, which we view
as critical to developing their potential and harnessing their expertise
more effectively.
Revenue Sources
($ millions)
Revenue by
Geographic Region
($ millions)
Revenue by
End Market
For the year
ended December 31
n Equipment
2023
%
2022 change
$ 607.1 $
628.6
(3)%
For the year
ended December 31
n Western
Canada
n Central Canada
2023
%
2022 change
$ 975.8 $ 935.9
4%
543.3
605.1
354.3
483.9 12%
535.8 13%
275.5 29%
45.0
39.1 15%
(Ontario)
n Eastern
Canada*
387.9
317.9 22%
791.0
709.0 12%
$ 2,154.7 $ 1,962.8 10%
*Includes Quebec and the Atlantic provinces.
$ 2,154.7 $ 1,962.8 10%
Sales
n Product
Support
n Industrial Parts
n ERS
n Equipment
Rental
For the year
ended December 31
n Construction
n Mining
n Industrial/
Commercial
n Forestry
n Oil and Gas
n Oil Sands
n Transportation
n Government
and Utilities
n Metal Processing
n Other
2023
2022
16%
15%
13%
11%
10%
9%
7%
6%
5%
8%
16%
16%
13%
12%
9%
9%
7%
5%
6%
7%
2 Wajax 2023 Annual Report
(1) “Backlog” does not have a standardized meaning prescribed by GAAP. See Management’s Discussion and Analysis, page 21.
Growing the Existing Business with a Focus
on Parts, Service and Margin Improvement
Creating a differentiated and exceptional customer experience is an
important driver of success for Wajax. The strong growth we delivered
over the last year was the result of a combination of organic and
acquisitive initiatives, improved product mix, and offering more value-
added services to our customers, which resulted in a gross profit
margin improvement of 100 basis points. In 2023, we again delivered
exceptional customer experiences, which resulted in a customer Net
Promoter Score™ of +70. We are very proud of this excellent result,
which is consistent with the +71 we delivered last year. We were
also recognized by a number of key customers and suppliers for the
excellence of our service, receiving numerous awards.
Unlocking the Potential of Our Enhanced
Direct Relationship with Hitachi
In 2023, we shipped a near-record number of excavators and saw
solid bookings, including a multi-unit order for four large EX8000
excavators for delivery in 2024 and 2025. In 2024 Wajax will also
begin to source Hitachi parts directly from Japan, in an effort to
improve customer service and ensure we are the provider of choice in
servicing an evolving and increasingly differentiated Hitachi product
offering, which will drive improved Product Support revenue over the
mid- and longer-term. As part of their commitment to growing the North
American market, Hitachi also established a joint venture finance
company, Zaxis Finance, to provide dealers and customers with a “rapid
and competitive” financing option when purchasing equipment. We
continue to believe our strong, evolving and increasingly comprehensive
partnership with Hitachi will yield benefits for years to come.
Acquiring Industrial Parts (“IP”) and Engineered
Repair Services (“ERS”) Businesses
Wajax’s IP and ERS businesses have continued to flourish, generating a
combined 18% revenue increase over 2022. These strong results have
come through a combination of both organic and acquisitive growth.
During the year we completed two acquisitions. Polyphase is a leading
specialty producer of custom electrical and instrumentation equipment
with facilities in Calgary and Edmonton, AB, while Beta Fluid Power
and Beta Industrial are long-time suppliers of hydraulic and pneumatic
equipment as well as maintenance, repair and replacement services,
located in Sault Ste. Marie, ON. In combination, these acquisitions
expanded Wajax’s suite of offerings, added regional strength in key
markets and brought nearly 90 new teammates to Wajax, including
significant skilled, technical labour.
Since 2018, Wajax has deployed more than $200 million on
acquisitions in the IP/ERS space, with the goal of growing these less
cyclical and less capital-intensive businesses, to better balance the still
growing contribution from the Heavy Equipment side of the business.
Looking ahead, we continue to review a robust pipeline of acquisition
targets with a focus on adding multiple acquisitions each year to further
build and integrate our product and service offering and better serve
key geographies.
Improving Cost Structure and Processes
Investing in infrastructure and continuous improvement initiatives has
allowed Wajax to enhance customer service and to improve operating
efficiency and leverage in the business. As market conditions have
increasingly normalized post-COVID, we have generated improved gross
profit margins, delivering a greater contribution to the bottom line.
In 2023, we improved customer fill rates to nearly 90% on the strength
of continued improvements in our supply chain, better utilization of
our Distribution Centres and a thoughtful, disciplined investment in
inventory to support steady incoming order flow and a favourable
forecast for increased demand in the future.
ERP Rollout and Technology Improvements
A core component of our business and cost optimization process is our
ongoing ERP rollout. During the year, Tundra went live on the system, and
Wajax is now transacting more than 50% of its business on the platform.
This also included the integration of a Mobile Field Service offering,
delivering reduced downtime and greater convenience for customers.
Wajax has also begun offering digital solutions to allow customers to
better monitor and understand their operations, permitting increasingly
proactive responses to operational and maintenance issues before
significant problems arise.
Ongoing Commitment to Sustainability
Wajax remains committed to being good stewards of the environment,
supporting both internal stakeholders and the broader communities we
operate in, and upholding sound and ethical business practices. Key
highlights from our latest sustainability report include a 15% reduction
in our carbon intensity in 2023, and a 31% improvement since 2020
through energy efficiency projects. In 2023, we also invested in our
surrounding communities, raising $285,000 through partnerships with
Foodbanks Canada, Canadian Cancer Society, Kids Cancer Care and
the Red Cross. Our commitment to sustainability doesn’t end with our
own operations – we proactively work with our customers to help them
achieve their own sustainability goals. We continue to offer a growing
line of more environmentally friendly products and solutions including
lithium battery and hydrogen-powered lift trucks, electrification of
existing internal combustion units, electrical vehicle chargers and diesel
generators that meet increasingly stringent environmental standards.
Looking Ahead to a Bright Future
In closing, I want to thank all of our team members for their
collective contributions to safety and well-being, the satisfaction
of our customers, and our broader success this year. I also want
to thank our board members for their numerous contributions as
we enhanced our long-term strategic plan, designed to capture the
many opportunities that are ahead of us. I also want to thank our
suppliers for their continued hard work restoring supply chains
as business and industry around the world continue to recover
from COVID. Finally, on behalf of the entire organization I want to
recognize our customers – together, we look forward to serving your
growing and evolving needs for many years to come. I’m proud to
say it was an incredible year for Wajax. As an organization, we are
looking to the future with a strong sense of purpose, anticipation
and excitement, and I look forward to updating you on our progress
again next year.
Ignacy (Iggy) Domagalski
President and Chief Executive Officer
Wajax 2023 Annual Report 3
Wajax Purpose and Values
O U R P U R P O S E
Empowering People
to Build a Better
Tomorrow
O U R V A L U E S
We commit to safety
and well‑being.
We develop potential
and expertise.
We deliver an exceptional
experience together.
We build lasting
relationships.
We strive to continuously
improve.
4 Wajax 2023 Annual Report
4 Wajax 2023 Annual Report
Wajax’s journey to our Purpose and Values started with a process of discovery, when a group of 29 teammates gathered
their stories about Wajax on its best day. During a two-day session, an initial draft of our Purpose and Values statements was
developed. Thereafter, 100 listening sessions with more than 1,100 Wajax teammates from all branches provided input about
our Purpose and Values and what we could do to ensure we are living them every day. Our Purpose and Values were launched
with actions and initiatives to ensure they become a part of who we are.
“ Being aware of what is around us all the time, and it being front of mind, so that
every time we walk into the shop you look to see that we are following our values.”
Doug Balser, Parts and Service Manager, New Brunswick
“ We pride ourselves on what we know,
so then we are able to teach each
other, and learn from each other, it
gives us a better sense of confidence.”
Leisa Guenther, Inside Sales Representative,
British Columbia
“ When you have a great relationship
with your team, you’re excited to go
to work every morning, because you
have great teammates. The efficiency
that comes from that great teamwork
translates into a great customer
service experience.”
Raj Athwal, Branch Manager, Ontario
“ Downtime is a huge cost for any kind
of company; whether its trucking, oil,
or farming. So, when you can provide
a service that gets them back up and
running in a timely fashion, they’ll
keep coming back.”
Evan McGonigle, Foreman, Saskatchewan
“ For me, ‘continually improving’ means
always doing better quality work –
better costs and prices.”
Pierre-Olivier Gaudet, Contremaitre d’atelier,
Shop Foreman, Quebec
Wajax 2023 Annual Report 5
Wajax Strategy
O U R S T R A T E G I C P R I O R I T I E S
Continue to build a
people‑first company.
Acquire IP and ERS
businesses.
Grow our existing business
with a focus on parts, service,
and margin improvement.
Improve our cost
structure and
processes.
Unlock the potential of our
enhanced direct relationship
with Hitachi.
Continue ERP roll‑out
and technology
improvements.
6 Wajax 2023 Annual Report
6 Wajax 2023 Annual Report
“ Wajax continues to target operational efficiencies
through the integration of advanced technologies and
systems right across our operations. In combination
with solid growth in many of the sectors we serve, this
focus has driven even better customer experiences,
enhanced profitability and delivered improved
shareholder value.”
Stuart Auld, Chief Financial Officer
“ Carefully managing global supply chains and inventory levels
has recently proved a major challenge for many organizations.
Wajax prides itself on working closely with key OEMs and
industry‑leading product suppliers to ensure we have the right
mix of SKUs available to our customers, all sold and supported
by dedicated teams focused on providing comprehensive
solutions that meet and exceed customer requirements.”
Brian Deacon, Senior Vice President, Category Management
“ Through a combination of both organic and acquisition initiatives,
Wajax has continued to build an increasingly comprehensive
suite of products and services to support Canadian industry. Our
engineered repair services team offers customers unparalleled
expertise, access to industry‑leading technology and solutions,
and both mobile and on‑site service, ensuring they get the help
they need, when and where they need it.”
André Dubé, Senior Vice President, Sales and Operations
“ Building a people‑first company is about us working together
to realize our purpose and live our values every day so that
both our people and our business thrive. Wajax offers a
growing array of initiatives that begin with onboarding and
support diversity and inclusion, include comprehensive,
learning and development programs, allowing us to attract
and retain the best people.”
Mark Edgar, Chief People Officer
Wajax 2023 Annual Report 7
Heavy Equipment
S C A L E A N D O P P O R T U N I T Y
In 2023, Wajax achieved significant milestones in its Heavy
Equipment business, reflecting robust market demand and
consistent execution against strategic initiatives that further
bolstered our position in the industry. Near‑record Hitachi
excavator sales underscore the strong and sustained demand
for our core Heavy Equipment solutions.
Wajax offers a full range of equipment from
leading OEMs, as well as parts and product
support, keeping Canadian industry working.
Instrumental to our growing success is our enhanced direct relationship with Hitachi Construction
Machinery, a renowned global leader in Heavy Equipment. Their renewed commitment to the North
American market and a more streamlined sales and fulfillment channel brings tangible benefits
to our customers. In 2024, we are set to source parts directly from Japan, enhancing our supply
chain efficiency and ensuring that our customers receive genuine Hitachi parts, further solidifying
their trust in Wajax.
8 Wajax 2023 Annual Report
8 Wajax 2023 Annual Report
4% increasein combined Heavy Equipment and product support sales in 2023. Wajax’s commitment to excellence is supported by our strong relationships with key
vendors across a variety of equipment categories including construction, mining,
material handling and forestry.
Our partnerships with industry leaders such as Hyster-Yale Group, Tigercat, Hitachi
Construction Machinery Americas, Bell Equipment, Rolls-Royce Power Systems, and
Allison Transmission continue to be a cornerstone for our success. These partnerships
not only set us apart from the competition, but also position us strategically to
capitalize on a diverse array of emerging opportunities in the heavy equipment market.
A key component of Wajax’s heavy equipment business is our end-to-end support,
which extends well beyond the initial sale. Our comprehensive support infrastructure
is designed to benefit our customers throughout the entire lifecycle of their heavy
equipment, ensuring it operates efficiently and with minimal downtime.
This commitment to
customer success is a key
differentiator and ensures
that our customers not
only acquire top‑tier heavy
machinery, but also receive
unparalleled ongoing
support across geographies
and verticals.
Heavy Equipment Revenue ($ millions)
1,036.9
1,035.3
918.6
915.8 957.4
1,195.3
1,151.6
2017
2018
2019
2020 2021
2022 2023
Construction, Forestry and Crane/Utility
Mining
Power Systems
Material Handling
Construction, Forestry, Crane and
Utility Revenue ($ millions)
Material Handling Revenue ($ millions)
415.8 435.1
420.6
435.7
386.1
516.4 542.7
208.8
163.9
151.1 149.7
143.7
172.1
120.8
2017
2018
2019
2020
2021
2022
2023
2017
2018
2019
2020
2021
2022
2023
Equipment
Product Support
Equipment
Rental
Product Support
Mining Revenue ($ millions)
Power Systems Revenue ($ millions)
226.5
196.6
292.0
282.1
271.2
236.6 247.2
218.8
202.6
164.5
170.3 176.0
153.2
110.8
2017
2018
2019
2020
2021
2022
2023
2017
2018
2019
2020
2021
2022
2023
Equipment
Product Support
Equipment
Rental
Product Support
Wajax 2023 Annual Report 9
Industrial Parts and Engineered Repair Services
M U L T I P L E P A T H S F O R G R O W T H
In industrial parts distribution, Wajax proudly stands as one of
Canada’s leaders, boasting an extensive inventory of more than
four million SKUs. Our national footprint extends coast‑to‑coast,
and branches are strategically positioned in close proximity to
our valued customers. This network ensures rapid access to our
parts inventory, helping to fulfill our commitment to delivering
unparalleled service.
Integral to our operational efficiency is our ERP system, which we continue to implement
nationwide. The new system empowers our teams to manage orders more effectively and
streamlines the overall customer experience, reflecting our dedication to technological innovation
and continuous improvement.
Wajax’s diverse parts portfolio includes multiple brands within each category, ensuring a
comprehensive array of options for customers. From trusted global brands, to an extensive
range of OEMs and warranty-approved aftermarket components, our inventory includes bearings,
power transmission, hydraulics, pneumatics, bulk material handling, fluid handling, filtration,
instrumentation, safety and mill supplies.
Wajax’s ERS offering continues to expand in key
markets such as energy, renewables, food and
beverage, manufacturing, and more.
Beyond parts distribution, Wajax takes pride in offering on-site, in-house and in-the-field
maintenance, repair and overhaul services. Our team of ERS engineers and technicians
help to ensure peak performance for customer operations. With a focus on preventative
maintenance and emergency services, we minimize wear and tear, keeping critical
equipment running efficiently, with minimal downtime.
Through a strategic blend of acquisitions and organic growth, we have positioned
ourselves as a leader in the Canadian industrial products and services market.
Addressing customers’ unique challenges by driving operational efficiencies, ensuring
high safety standards and supporting improved sustainability is at the core of our
mission. This commitment is unwavering, especially against a backdrop of higher costs
and ongoing shortages in labour.
Wajax carefully manages its inventory nationwide
to support high fill rates for customers.
Wajax’s skilled technical teams offer in-shop,
on-site and mobile maintenance, repair and
overhaul services.
Our technicians utilize the latest diagnostic
and condition monitoring technology to assess
asset performance.
10 Wajax 2023 Annual Report
18% increasein IP and ERS sales in 2023. Total IP and ERS Revenue(1) ($ millions)
IP Revenue ($ millions)
ERS Revenue(1) ($ millions)
991.3
835.5
699.5
605.1
535.8
386.3
299.7
261.3
403.1
449.7
522.8
518.4
340.0
361.7
366.6
342.6
438.1
175.9
156.3
88.1
63.1
2017
2018
2019
2020 2021
2022 2023
2017
2018
2019
2020 2021
2022 2023
2017
2018
2019
2020 2021
2022 2023
Industrial Parts
Engineered Repair Services
(1) Consolidated category revenue may not match total revenue due to
adjustments and eliminations not allocated to the categories.
Wajax 2023 Annual Report 11
Wajax 2023 Annual Report 11
Sustainability at Wajax
At Wajax, we are committed to building a people‑first, environmentally and socially
responsible company, as we live our purpose of empowering people to build a better
tomorrow. This all goes hand‑in‑hand with an unyielding commitment to ethical
business practices and sound corporate governance.
Ongoing Commitment to Sustainability
In 2023, Wajax rolled out our new Purpose and Values and we are working to
embed them in our culture. Being “people-first” is about caring for our employees
every day, and giving them the tools they need to thrive, so they can support our
customers and the communities they live in. In 2023, this included new health and
wellness initiatives and an expanded commitment to learning and development, all
designed to retain employees and help them succeed in their careers.
Our continued focus in these areas translated into strong employee and customer
Net Promoter Scores®, highlighting our commitment to service and strong
relationships across stakeholder groups. We also recognize that we have a role to
play in delivering sustainable products and solutions to our customers, reducing
our overall environmental footprint, and giving back to the communities around us.
We succeeded on all fronts in 2023. The Wajax Sustainability Roadmap is based
on our materiality assessment conducted in 2020 and aligns with the United
Nations Sustainable Development Goals.
Wajax is committed to supporting the United Nations’ Sustainable
Development Goals as applicable to our operations.
Sustainability Roadmap
Area
Priorities
Progress
Environment
Reduce our carbon footprint from owned or
Reduced our carbon intensity by 15.0% in 2023, and 30.7% since 2020.
controlled sources.
Offer increasingly sustainable products,
support renewable industries, and provide
solutions that help customers meet their
own environmental goals.
Re-used/recycled 4,995 tonnes of e-waste.
Provided customers with emission-free electric-, hydrogen- and fuel cell-powered units.
Supported an estimated 47,700 tCO2e reduction in GHG emissions by customers through the use of
variable frequency drives – equivalent to 13 wind turbines running for a year.
Social
Focus on employee health, safety, and well-
Posted a strong 1.01 TRIF rate and successfully piloted multiple tools to modernize our employee health
being as part of our core values.
and safety programs.
Give back to the community.
Support diversity and equal opportunity.
Introduced an incentive bonus plan for ~1,100 frontline employees; nearly all Wajax employees now
participate in some form of commission, bonus or profit-sharing program.
Updated mental and financial health resources available to all employees.
Furthered diversity and inclusion efforts by launching our first employee resource group,
“Women of Wajax” (“WoW”) / « Les Elles de Wajax » (“EdW”).
Invested ~$285,000 in our communities through partnerships with Foodbanks Canada, Canadian Cancer
Society, Kids Cancer Care Alberta and Red Cross.
Governance
Enhance sustainability ESG governance for
future disclosures and regulated reporting.
Delivered exceptional customer experiences, resulting in a customer Net Promoter Score of +70, and
awards from customers including Danfoss, ITT Goulds, Rio Tinto, and many others.
Uphold high ethical standards in the
conduct of our business.
Rolled out anti-forced and child labour training and employee acknowledgements to our supply chain and
procurement groups, prepared a vendor code of conduct, and produced Wajax’s first report under the
Fighting Against Forced Labour and Child Labour in Supply Chain Act (Canada).
Implemented sustainability software to enhance data collection, analysis and reporting readiness.
12 Wajax 2023 Annual Report
Environment
Wajax has established GHG reduction targets that align with The Science Based Targets
Initiative’s (“SBTi’s”) Well‑Below‑2C scenario. Our near‑term goal is a 10% reduction in
GHG’s by 2025, and 25% reduction by 2030, from our established 2022 baseline.
Our ambition is to be net-zero by 2050 through a combination of
energy efficiency measures and other emission reduction programs.
As Wajax’s business continues to grow, our carbon intensity has
consistently declined since 2020, demonstrating our commitment
to meeting our environmental targets.
Carbon Intensity
We returned to in-person environmental audits in 2023 with a more
comprehensive audit scope. Audits help manage operational and
environmental compliance risk, and support employee engagement
and education. Our Environmental Management System catalogues
environmental incidents, enables root cause analysis, and tracks
audits and other key environmental indicators as part of our
continuous improvement focus.
2020
2021
2022
2023
Managing our Resources
Revenue ($ in millions) from
Scope 1 + 2 emissions (tCO2e)
12.21
11.51
9.95
8.46
30.7%
decrease
in Wajax carbon intensity since 2020
Reducing GHG Emissions
Facility and Infrastructure Upgrades
In 2023 we successfully reduced GHG emissions by 253 tCO2e
through LED upgrades and other initiatives such as installing
thermostat controls.
GHG Reduction Summary
Reduction (tCO2e)
Cumulative totals (tCO2e)
2021
2022
2023
57
57
201
258
253
511
Managing Environmental Risks
The efficient management of oil, fuel and other hazardous
materials to prevent spills remains a top priority and is our
largest environmental risk. We provide ongoing education for our
employees for the prevention and control of spill incidents through
awareness communications, training programs, and stringent
enforcement of our spill prevention and management procedures.
As a proactive measure to prevent potential liabilities and impact
on the environment, Wajax continued its storage tank replacement
initiative, with 10 tanks replaced in 2023.
We drove a 2,983 tCO2e GHG reduction through waste recycling
and landfill diversion in collaboration with our waste management
partners. We also participate in recycling and reuse programs for
our electronic waste, helping make technology accessible to those
who cannot otherwise afford it.
Wajax consumes only modest volumes of water, but has been
collecting data at key usage points, such as vehicle wash bays.
Fleet and Logistics
Wajax manages a fleet of 965 vehicles to support its operations.
We use telematics to optimize our fleet maintenance and logistics.
Tracking vehicle maintenance ensures they are in good repair and
operating efficiently. We closely monitor fuel consumption and the
environmental footprint of our fleet, as well as driver habits, and
providing National Safety Council driver training. Transportation
is scheduled with an optimized route to ensure efficient and
safe travel.
2,983 tCO2e
in GHG reduction through waste
recycling and landfill diversion.
Wajax tested, stabilized, and provided training on the operations of this fully electric bucket truck.
(1) For GHG emission targets, Wajax is adopting the SBTi’s criteria but has not submitted for validation.
Wajax 2023 Annual Report 13
Using electric motors to drive rotating equipment cuts emissions
versus internal combustion engines. Further emission reductions
are achieved when electric equipment is controlled using a variable
frequency drive (“VFD”). A VFD allows electric motors to operate at
a slower speed with reduced energy consumption. Tundra Process
Solutions delivered a cumulative total of ~165,000 HP in VFDs to
our customers in 2023, resulting in an estimated carbon emission
reduction of 47,700 tCO2e.
Environment
Offering Sustainable Products
To help our customers meet their environmental goals, Wajax
continues to deliver increasingly sustainable and reliable products.
We offer emission-free electric, hydrogen and fuel cell-powered
units from our manufacturing partners such as Columbia Vehicle
Group, Hyster-Yale Group, Powerboss, MAFI, Terex and Allison.
Emerging technologies that Wajax supports include:
Hydrogen powered container handlers
Fully integrated lithium-ion forklifts
Robotic forklifts and scrubbers
Zero emission sweepers
Electric yard and terminal trucks
Electric utility bucket trucks
Hybrid transmissions
Wajax also remanufactures hydraulic cylinders and rebuilds engines
and engine parts to ensure the components are returned to OEM
specifications, supporting cost effectiveness and minimizing
waste. In addition, Wajax sells hybrid transmissions for commercial
vehicles, which maximizes their fuel efficiency.
Wajax continues to support the Canada’s multi-decade investment in wind power.
Supporting Renewable Industry
Wind power is on the rise globally. This clean, renewable energy
is abundant in Canada, and Wajax’s ERS business continues to
support the customer investment in wind power. Delom Services
carries out repairs and overhaul for all types of wind power
technology, including preventive or predictive maintenance,
end-of-warranty inspection, reverse engineering and generator
rewinding. Delom Services also offers refurbishment of
hydroelectric generators.
Tundra Process Solutions helped
clients reduce an estimated
47,700 tCO2e
in carbon emissions.
Hyster hydrogen powered container handler.
14 Wajax 2023 Annual Report
Key Environmental Metrics
Metric
What it Measures
Data
Discussion and Progress
Environment
Energy consumption within the organization – fleet unleaded
and premium gasoline consumption.
9,911
9,907
11,075
Fleet fuel consumption increased due to increased work
activity and the size of the fleet.
Gasoline fuel
consumed megawatt
hours (MWh)
Diesel Fuel consumed
megawatt hours
(MWh)
Energy consumption within the organization – fleet diesel
fuel consumption.
Electricity consumed
megawatt hours
(MWh)
Energy consumption within the organization –
building electricity consumption i.e. lighting and
equipment operation.
Natural gas
consumed megawatt
hours (MWh)
Energy consumption within the organization – building
natural gas consumption i.e. boilers for heating.
Tonnes of CO2
equivalent (tCO2e)
Direct (Scope 1) GHG emissions from owned or controlled
sources – natural gas, fleet fuel gasoline, fleet fuel diesel.
Indirect (Scope 2) GHG emissions from the generation of
purchased energy – electricity.
Non-hazardous waste recycled and landfilled.
Hazardous waste recycled and landfilled.
E-waste reused and/or recycled after equipment is taken
out of service through obsolescence or breakdown.(4)
Non-hazardous waste
recycled: percent of
total waste stream/
tonnes recycled (t)
Hazardous waste
recycled: percent of
total waste stream/
tonnes recycled (t)
E-waste reused
and/or recycled
kilograms (kg)
Tonnes of CO2
equivalent (tCO2e)
tCO2e avoided from non-hazardous waste diversion from
landfill (recycling cardboard, paper, plastics, wood, metal).
2021
2022
2023
7,757
7,551
8,547
2021
2022
2023
26,251
26,176
24,929
2021
2022
2023
53,854
58,578
50,863
2021
2022
2023
13,644
14,587
13,858
2021
5,209
2022
2023
4,939
4,337
2021
2022
776
825
2023
994
2021
2022
2023
566
547
630
2021
2022
2023
4,608
4,995
2,803
2021
2022
1,859
1,937
2023
2,740
2021
2022
2023
LED lighting upgrades were completed at multiple
branches with a GHG Reduction of 228 tCO2e
Industrial thermostats installed at several branches with
GHG reduction of 25.35 tCO2e.
A Heat Economizer will be piloted in January 2024 with a
GHG reduction of 24.81 tCO2e.
6.8% reduction in total Scope 1 + 2 from prior year
due to successful implementation of energy reduction
initiatives and changes to emission factor.
Total waste volumes increased due to increased work
activity and acquisitions, but we continue to see small
positive increases in diversion from landfill.
Percent hazardous waste recycled remained relatively
flat while total tonnes increased. Total waste volumes,
including recyclable streams, significantly increased due
to increased work activity and acquisitions.
Our e-waste significantly increased in 2023 due to the
cyclical nature of equipment obsolescence.
Waste and recycling volumes increased over 2023 due
to increased work activity and acquisitions resulting in
higher tCO2e diverted.
tCO2e avoided from hazardous waste diversion from landfill
(oil and solvent recycling).
686
521
243
tCO2e avoided significantly down as our hazardous waste
recycling vendor has adopted a new, more conservative,
calculation methodology in 2023.
2021
2022
2023
(1) Scope 1, 2 GHG emissions are calculated in accordance with the Greenhouse Gas Protocol Accounting and Reporting principles.
(2)
GHG Scope 1, 2 emissions: GHG emissions variance due to real estate mix, acquisitions, and changes in emission factors. The government of Canada publishes every year provincial emission
factors for GHG calculations. The emission factors change slightly from year to year as the electrical grid becomes greener and thus favorable impacting our own calculations.
(3) Energy consumption: 2022 established as baseline.
(4) E-waste: equipment reused or recycled through Electronics Recycling Association.
Wajax 2023 Annual Report 15
Social
Wajax believes that employee safety, health and wellness is critical to the overall strength
and performance of our business. Our goal is to provide meaningful opportunities
throughout employment, including recruitment, development and retention, supporting
employees of all backgrounds. We also believe that being a good corporate citizen goes
beyond just providing employment. We want to invest in our people and contribute to the
communities that we are part of across the country.
way through nutrition. Financial health training was developed
in-house and rolled out to employees. This voluntary training has
been well received. Health screening clinics and flu clinics were
offered at select branches to help employees address lifestyle
health challenges. Wajax was presented Gold Level certification
from Excellence Canada in both the Mental Health and Healthy
Workplace categories in 2022.
Managing EHS Risk
The enhancement of our risk assessment program in 2023 led
to the creation of 192 task-specific Job Hazard Assessments
for safety-sensitive work. 420 employees completed hazard
identification training in 2023. Enhancements to our hearing
conservation and respiratory protection programs were
implemented and 92% of service branches received a respiratory
risk assessment; 11 comprehensive noise surveys were also
conducted. A Crisis Management Team and a new emergency
alert system is now in place with a three-tier escalation process
for emergency response based on severity and potential impact
to the health and safety of employees, IT infrastructure and
business continuity.
Safety Training
Each Wajax employee receives comprehensive safety orientation
and training specifically tailored to their respective roles within
the company.
1,491 employees have been trained on situational awareness,
including 399 in 2023.
428 managers and supervisors have completed the Wajax Safety
Leadership training, 76 in 2023.
115 employees completed Joint Health and Safety Committee
training in 2023.
84 were trained on incident investigation.
Wajax employees work together to ensure everyone goes home safe and well at the end
of each shift.
Employees enjoying a wellness challenge outdoors.
Commitment to Safety and Well-being
Our commitment to safety and well-being is part of our Purpose
and Values and integral to our safety management program and
culture. During 2023 we undertook a modernization of our safety
and project management programs by leveraging technology,
piloting a new hazard assessment app, and introducing compliance
software for certification of equipment, and third-party contractor
management. The use of online applications empowers greater
engagement and ease of access for our frontline employees.
Standardized guidance for customer-facing project safety planning
was also developed and our electrical safety program was
revamped to align with changes in electrical standards.
Health and Wellness
Priority
2022
2023
Industry
Average
National
Norm
EAP Utilization %
13.29%
12.50%
5.96%
9.37%
Wajax remains committed to employee well-being. The Health
and Wellness Team, along with 13 Committee Members and
102 Wellness Champions across the country promote various
programs, services, and resources to support employees and their
family members with managing their mental, physical, financial, and
social health. In February 2023, Wajax ran a comprehensive Health
Risk Assessment. 30% of employees completed the survey (up 4%
compared with 2021). Survey findings will inform the 2023-2024
Health and Wellness Plan. Wajax encourages employees to use the
group benefits plan and the Employee Assistance Program (“EAP”)
proactively. In 2023, we added a new Health Spending Account,
and our EAP utilization is higher than both the industry average
and the national norm. This is typically indicative of a healthy
workplace culture.
Our second annual Summer Wellness Challenge was offered to
help employees form healthy habits. Employees were encouraged
to increase their physical, mental, and social well-being in a holistic
16 Wajax 2023 Annual Report
Key Indicators of Safety Performance
Metric
Fatalities
What it Measures
Data
Discussion and Progress
Number of workplace fatalities, the goal is always zero.
0
0
0
0
There were no workplace fatalities at Wajax in 2023.
Recordable Injuries
Recordable Injuries includes the total of medical aids,
modified duty, lost time incidents.
Total Recordable
Injury Frequency
(“TRIF”)
Safety performance is measured by number of
recordable injuries for every 200,000 exposure hours.
A TRIF of <1.00 is considered exceptional for companies
performing high-risk activities.
2020
2021
2022
2023
28
29
26
33
2020
2021
2022
2023
1.08
1.02
0.84
1.01
2020
2021
2022
2023
There were 33 recordable injuries in 2023. All were low
consequence injuries.
Business growth brought an influx of new employees in
2023 which resulted in a slightly higher TRIF over last year.
Potential Serious
Injury and Fatality
Incidents with high potential for serious injury or fatality
for every 200,000 hours worked.
0.18
Wajax began tracking high potential incidents in
Q2 of 2023.
Total Injury Frequency
Total number of recordable and first aid injuries for every
200,000 hours worked.
N/A
N/A
N/A
2020
2021
2022
2023
4.82
3.70
4.13
3.36
2020
2021
2022
2023
Wajax encourages the reporting of all injuries regardless
of severity. The Total Injury Frequency rate decreased 19%
in 2023.
Lost Time Incident
Frequency (“LTIF”)
The number of lost time injuries for every 200,000 hours
worked. An LTIF of <0.10 is considered exceptional for
companies performing high-risk activities.
0.46
0.31
0.16
0.18
LTIF in 2023 was similar to the previous year as severity
and consequence of injuries remain low.
Near Misses
A leading indicator that helps prevent injuries and
improve our safety program.
Corrective Actions
Closed on Time
Items requiring follow-up identified through inspections,
audits, observations, and incident investigations are
each assigned a due date and responsible party.
Branch Health and
Safety Evaluations (%)
Internal audit program measures compliance with Wajax
standards and OHS legislation.
Successful
re-certification of
all COR certified
branches
Motor Vehicle
Accident
(“MVA”) Rate(1)
Certificate of Recognition (“COR”) scores (%) measures
adherence to industry-best safety practices. External
audit every three years and a maintenance audit in
subsequent years.
Safety performance of a vehicle fleet. The MVA rate
is an industry accepted metric to evaluate fleet
safety performance. An MVA rate <1.00 is considered
best in class.
2020
2021
2022
2023
133
132
139
151
2020
2021
2022
2023
95%
95%
92%
92%
2020
2021
2022
2023
86%
86%
88%
90%
2020
2021
2022
2023
100%
98%
86%
96%
2020
2021
2022
2023
2.66
2.23
0.71
0.16
2020
2021
2022
2023
(1) MVA Rate = Total number of motor vehicle traffic collisions x 1,000,000 kilometers / number of kilometers driven.
Near miss reporting in 2023 increased 9% over last year.
An increase in near miss reporting is a positive leading
indicator of a proactive safety culture.
92% of corrective actions were closed on time. The EHS
team monitors and provides support to ensure corrective
actions are completed and implemented.
A more comprehensive audit scope was implemented in
2023. Branch compliance resulted in an average grade
of 90%.
2023 was a self-assessment year for the 30 branches in
the COR program as we prepare for the 2024 external audit
for re-certification.
Wajax drivers accumulated 12,844,586 km and two
accidents in 2023 resulting in an exceptional MVA rate
of 0.16.
Developing Potential and Expertise
Over the past year, our organization has taken broad strides to
enhance learning and development, ensuring alignment with our
core value of developing potential and expertise. At the heart of
this evolution is our dedicated learning platform, WajaxU, which has
become a dynamic hub for fostering growth and honing expertise
within our workforce. A key highlight for 2023 was the integration of
a new third-party e-learning content provider.
In the last year, we also rolled out various talent management
tools for our employees such as personal development plans. Our
commitment to comprehensive learning was evident in the diverse
array of courses conducted throughout the year. From technical
skill-building to soft skills training, these courses catered to the
multifaceted needs of our employees, contributing to a well-rounded
and adept workforce that embodies our Purpose and Values.
Learning and Development
Priority
Total Employee Training Hours Total
2022
2023
61,120
45,404
Total Environment, Health and Safety Training Hours
27,303
16,619
Hours by category
Technician and warehouse
Non-technician
–
–
31,620
13,784
Wajax 2023 Annual Report 17
Social
Communities
Supporting the communities in which we live and work is extremely
important to Wajax. Organizations we continued to support in 2023
included: Food Banks Canada, Canadian Cancer Society, Indspire,
and Kids Cancer Care Foundation of Alberta.
For the second year in a row, our employees and their family and
friends participated in CIBC’s Run for the Cure in support of the
Canadian Cancer Society. Team Wajax surpassed the $10,000
goal, raising an impressive $22,100 in support of cancer research.
A Diverse Team is a Strong Team at Wajax
Increased Charitable Giving
Communities
Priority
What it Measures
2022
2023
Community
Service
Charitable contributions to strengthen
our organizational culture and
our communities
$260,000 $285,000
One of Wajax’s strategic priorities is to build a people-first
company where we continue to make diversity, inclusion and equal
opportunity a part of our everyday conversations. Our current
priority is gender diversity, supporting women at Wajax.
In 2023, Wajax officially launched its first
employee resource group – Women of Wajax/
Les Elles de Wajax. Our mission is to empower
women by creating a safe and inclusive work
environment that offers opportunities for
networking, mentorship and development. In
addition, Wajax continued to observe Black
History Month, International Women’s Day, Pride initiatives and the
Day of Truth and Reconciliation. We also expanded our partnerships
with Jill of All Trades, Catalyst, Women Building Futures, and
Indspire. As part of our commitment to employee health and
well-being we offered additional benefits coverage, flexible working
arrangements, including a “retire to rehire” program, the option to
add preferred pronouns to email signatures, updated policies, and
a gender wage gap review (with no gaps reported).
Diversity Goals
Priority
What it Measures
2022
2023
Employees raising funds for the Canadian Cancer Society.
Employee Satisfaction Scores Reflect
Commitment to Excellence
Embracing a holistic approach to employee well-being, we’ve made
it a priority to create a workplace culture that values and prioritizes
the needs of our team members. Through our recent Voice of
the Employee survey, with an 88% completion rate, we achieved
our highest-ever Employee Net Promoter Score (“eNPS”). This
remarkable score is a testament to our employees’ belief in our
dedication to creating a workplace that genuinely cares about their
experiences and contributions. The eNPS highlights our focus on
continuous improvement, one of our core values, where we utilize
employee feedback to create action plans, focused on making
Wajax an even better place to work.
Voice of the Employee
Priority
What it Measures
Employee Survey
Feedback
Participation rate
2022
2023
90%
88%
Employee Net Promoter ScoreSM (eNPS)
+25
+35
Diversity and Equal
Opportunity –
Continuous
Improvement(2)
Percentage of Women on Wajax Board
of Directors
44.4%
45.5%
Percentage of Women in Senior
Management(1)
12.5%
11.1%
Percentage of Women Direct Reports to
Senior Management
48.0%
43.0%
Percentage of Women at Wajax
21.0%
21.2%
Percentage of Women in Operational
Roles (Technician, Warehouse)
10.0%
9.4%
(1) Composed of Wajax’s corporate officers. Representation reported is based on
voluntary self-identification.
(2) Data is based on employee self-disclosure.
2022
2023
21.0%
21.2%
5.9%
1.9%
1.1%
1.0%
5.2%
1.7%
1.0%
0.9%
Diversity Breakdown
Women in Workforce
Visible Minorites
Indigenous Persons
Persons with Disabilities
LGBTQ2S+
18 Wajax 2023 Annual Report
Governance
Wajax values its reputation for fair dealing
and integrity and is committed to upholding
high ethical standards in the conduct of its
business. Earning the trust and confidence
of our customers starts with having high
ethical standards and strong governance
practices in place.
Setting a Highly Ethical Standard
Wajax’s Code of Business Conduct (the “Code”) sets out expected
behaviour and conduct for all employees and directors. The Code
sets forth important guiding principles regarding dignity, respect,
and fairness in the workplace, and sets a clear “zero tolerance”
approach for bribery and corruption in Wajax’s business dealings
and relationships. The Corporation has implemented online
anti-bribery and anti-corruption training for all managers, and they
are required to complete this training every 24 months. Wajax
also maintains an ethics hotline, dedicated e-mail account and
post office box where concerns may be reported anonymously;
all submissions are investigated and reported on to the Audit
Committee of the Board of Directors.
Clear Expectations of Our Team Members
To supplement the principles set out in the Code, Wajax
has comprehensive policies in place that clearly spell out
the Corporation’s expectations in specific areas. Each year
all employees are required to review and acknowledge the
following policies:
Code of Business Conduct
Violence and Harassment in the Workplace Policy
Alcohol and Drug Policy
Environmental, Health and Safety Policy
Health and Wellness Policy
Acceptable Use (Information Systems) Policy
Travel, Entertainment and Expense Policy
Social Media Policy
Cybersecurity Training
Selected employees also must sign off on Chart of Authority and
Customer Facing Project policies.
Committed to Sound Corporate Governance Practices
As a publicly traded company, we take our obligation to adhere to
sound corporate governance practices very seriously and believe
that they are integral to the creation of long-term shareholder value.
Our board is strong and experienced, and our directors possess
the appropriate competencies, skills and personal attributes to
effectively discharge their mandate. Our corporate governance
practices are more fully described in our annual management
information circular, which is publicly filed and available via
SEDAR+. A summary of key corporate governance practices is set
out in the adjacent table.
Committed to Sustainability
Wajax’s board is committed to sustainability, viewing it as essential
to being a good corporate citizen and the long-term success of the
Corporation. In 2022, we enshrined ESG oversight in our Board
Mandate and the Charters of the Governance, Audit and Human
Resources and Compensation committees of the board. In 2023
Wajax rolled out anti-forced and child labour training and employee
acknowledgements to our supply chain and procurement groups,
prepared a vendor code of conduct, and produced Wajax’s first
report under the Fighting Against Forced Labour and Child Labour
in Supply Chain Act (Canada). The board and its committees
oversee and monitor the Corporation’s approach, policies and
practices related to ESG matters, and environmental, health and
safety issues.
Cybersecurity
In an increasingly digitized business environment, cybersecurity
remains a top priority to safeguard assets, protect customer data
and ensure operational integrity.
Our board recognizes the critical importance of cybersecurity and
oversees our strategy. Senior management regularly reviews and
updates our cybersecurity framework, ensuring alignment with
industry best practices and regulatory requirements.
Wajax conducts regular risk assessments to identify potential
cybersecurity threats and vulnerabilities. We employ a
comprehensive risk management framework to address identified
risks and have business continuity plans to help mitigate any
potential impacts on our operations and customers. Our incident
response plan is regularly tested and updated to ensure a swift
and effective response in the event of a cybersecurity incident.
Human error remains a significant factor in cybersecurity incidents.
Wajax conducts regular security awareness training for all
employees, emphasizing best practices and cultivating a culture of
awareness company wide.
We work closely with our vendors and partners to ensure that
they maintain a level of cybersecurity that aligns with our Third-
Party Risk Management program. We regularly assess and audit
third-party security practices to mitigate potential risks arising from
external connections.
Key Corporate Governance Practices
Independent board – 91% of directors are independent(1)
Independent committees – 100% of board committees are independent
Equity ownership – directors and certain senior officers are required to own shares
or have an equity interest in the Corporation to further align their interests with those
of shareholders
Non-executive chair – separate Chair and CEO positions and an independent Chair
of the board
Majority voting for directors – the directors are elected in a majority vote
Strong risk oversight – the board and its committees oversee risk management and
strategic financial and operating risks
Formal board evaluation process – the directors evaluate the board, committees,
chairs and individual director performance every year
Board renewal – the board has adopted age and term limits for directors
Board diversity – the board has adopted a diversity policy, including a target of 30%
for the number of women on board, and 45% of directors are women(1)
Independent advice – each board committee has full authority to retain independent
advisors to assist them in carrying out their duties and responsibilities
Code of conduct – directors, officers and employees must comply with the
Corporation’s Code of Business Conduct and confirm their compliance every year
Say-on-pay – an advisory vote on our approach to executive compensation has been
held every year since 2013
No overboarding of directors – no director sits on more than two other public
company boards
No stock options – no stock option awards for directors and officers
(1) As of the date of this report.
Wajax 2023 Annual Report 19
Message from the Chair
2023 was another excellent year for Wajax. The Corporation achieved a third year of
record revenue, record earnings, and created strong shareholder value – while launching
its company‑wide Purpose and Values initiative, continuing to build a “people‑first”
culture and maintaining a strong safety record. Exceptional financial results were driven
by the Corporation’s expanded direct relationship with Hitachi, and strong growth from
its IP and ERS businesses, which continued to thrive through a combination of organic
initiatives and acquisitions. An enhanced strategic plan approved by the board during the
year continues focus on these core contributors to Wajax’s success – and incorporates
additional elements critical to the Corporation’s success in years to come.
In his second year as President and CEO, Iggy dove more deeply
into the role, and the board continues to be very pleased with
his fresh perspective and approach – particularly with respect to
building Wajax’s culture with an eye to the future. Management’s
excellent work in this regard is detailed in Iggy’s Message to
Shareholders, and the board has seen first-hand the early benefits
of a team more positively engaged by Wajax’s Purpose and Values.
Mark Edgar joined the senior executive team early in 2023 as Chief
People Officer and will play an instrumental role in leading Wajax’s
transformation into a “people-first” organization.
More broadly and again, with an eye to
the future, Iggy and his team undertook
a comprehensive strategic planning
exercise during the year, carefully
evaluating the opportunities and
challenges facing the business.
The board participated in this process by offering constructive
feedback and challenge, where appropriate, to management’s
plans and assumptions. The resulting plan continues Wajax’s
strong focus on organic growth, unlocking the potential of the
Corporation’s enhanced direct relationship with Hitachi and
acquiring complementary industrial parts and ERS businesses –
while also incorporating its “people-first” vision, improvements to
cost structure and processes, and technology enhancements. The
board is fully aligned with this enhanced strategic plan, and the
recent addition to the senior executive team of two well-seasoned
Wajax leaders – André Dubé as Senior Vice President, Sales and
Operations, and Brian Deacon as Senior Vice President, Category
Management – will help to support its achievement.
Very notably, Steve Deck, Wajax’s Chief Operating Officer and
Senior Vice President, Heavy Equipment elected to retire at the
outset of 2024. In his near decade of service with Wajax, Steve
played key roles in launching the Corporation’s “One Wajax”
initiative, developing its Industrial Parts and ERS strategy, and
strengthening its relationship with Hitachi. On behalf of the board
and shareholders, I thank Steve for his many contributions and
wish him all the best in his retirement.
20 Wajax 2023 Annual Report
Edward M. Barrett, Chair of the Board
On the important topic of sustainability, Wajax continues to
advance an array of initiatives as it works to improve its already
award-winning employee health and wellness programs, reduce
emissions and support the communities it serves.
I would invite readers to review Wajax’s fourth annual sustainability
update elsewhere in this report to see the Corporation’s progress
in these areas. As part of the board’s own renewal process, Sylvia
Chrominska and Douglas Carty will be retiring as directors at the
close of the Corporation’s upcoming 2024 annual meeting. Both
Sylvia and Doug have made outstanding contributions over their
tenure, including as long-serving committee chairs, and I sincerely
thank them for their dedication, commitment and wisdom. In
anticipation of these retirements, we welcomed Elizabeth Summers
and David Smith to the board at the 2023 annual meeting;
both Elizabeth and David have extensive experience as senior
executives in the Canadian energy industry, and we look forward to
their contributions.
In closing, and on behalf of the board, I want to thank Iggy and his
management team for again delivering record results in the face
of unsettled economic conditions, challenging labour markets and
high interest rates. I also want to thank our employees for their
incredible efforts and dedication to excellence and safety, our
suppliers for their continued support, and our customers for their
loyalty. Last, but certainly not least, I thank my fellow directors, for
their ongoing support and wise counsel over the past year.
Edward M. Barrett
Chair of the Board
Management’s Discussion
and Analysis
The following management’s discussion and analysis (“MD&A”)
discusses the consolidated financial condition and results of
operations of Wajax Corporation (“Wajax” or the “Corporation”) for
the year ended December 31, 2023. This MD&A should be read
in conjunction with the information contained in the consolidated
financial statements and accompanying notes for the year ended
December 31, 2023. Information contained in this MD&A is based on
information available to management as of March 4, 2024.
Management is responsible for the information disclosed in this
MD&A and the consolidated financial statements and accompanying
notes, and has in place appropriate information systems,
procedures and controls to ensure that information used internally
by management and disclosed externally is materially complete
and reliable. Wajax’s Board of Directors has approved this MD&A
and the consolidated financial statements and accompanying
notes. In addition, Wajax’s Audit Committee, on behalf of the Board
of Directors, provides an oversight role with respect to all public
financial disclosures made by Wajax and has reviewed this MD&A and
the consolidated financial statements and accompanying notes.
Wajax reports on certain non-GAAP measures, non-GAAP ratios, and
supplementary financial measures that are used by management
to evaluate the performance of the Corporation. In addition, non-
GAAP measures are used in measuring compliance with debt
covenants. Non-GAAP measures do not have standardized meaning
under GAAP and may not be comparable to similar measures
provided by other issuers. Wajax includes these measures because
management believes that they assist investors in assessing
financial performance. The definition, calculation and reconciliation
of non-GAAP measures are provided in the Non-GAAP and Other
Financial Measures section.
Unless otherwise indicated, all financial information within this MD&A
is in millions of Canadian dollars, except ratio calculations, share,
share rights and per share data. Additional information, including
Wajax’s Annual Report and Annual Information Form, is available
under the Corporation’s profile on SEDAR+ at www.sedarplus.ca.
Wajax Corporation Overview
Founded in 1858, Wajax (TSX: WJX) is one of Canada’s longest-
standing and most diversified industrial products and services
providers. The Corporation operates an integrated distribution
system, providing sales, parts and services to a broad range of
customers in diverse sectors of the Canadian economy, including:
construction, forestry, mining, industrial and commercial, oil sands,
transportation, metal processing, government and utilities, and oil
and gas.
Strategic Direction and Outlook
Wajax’s corporate purpose statement is, “Empowering People to Build
a Better Tomorrow”, which we strive to achieve by living our values
and delivering an exceptional experience for our people, customers,
suppliers and the communities we serve. In 2024, we plan to focus
on six strategic priorities:
Continuing to Build a “People First” Company
The safety, well-being and engagement of our 3,200+ teammates
is the foundation that ensures that both our people and business
can thrive together. We take a comprehensive approach to
employee health and wellness – including physical, mental and
financial well-being – in addition to providing extensive learning
and development opportunities and support for internal career
development. A key pillar of building a “people first” company is living
our values every day:
We commit to safety and well-being;
We develop potential and expertise;
We deliver an exceptional experience together;
We build lasting relationships; and
We strive to continuously improve.
Growing Our Existing Business with a Focus
on Parts, Service and Margin Improvement
Creating a differentiated and exceptional customer experience is an
important driver of success for Wajax. We will continue to focus on
expanding our product support business, which will improve our mix
and margin profile over time and expand the value-added services we
offer to our customers.
People are the cornerstone of our brand and value proposition, and
we will also continue to invest in the best tools, training and support
to deliver the technical expertise and experience that is highly valued
by our customers.
Unlocking the Potential of Our Enhanced
Direct Relationship with Hitachi
Continuing to leverage and expand our enhanced direct distribution
relationship with Hitachi will also be a key driver of our success. Our
ability to source world-class Hitachi equipment and parts directly
from Japan, coupled with Hitachi’s technological innovation and
dedicated financing programs, will continue to allow us to better
serve our customers.
Acquiring Industrial Parts and Engineered Repair Services Businesses
Acquiring companies that add to the range of industrial parts and
engineered repair services (“ERS”) capabilities we offer across
the country. Our national infrastructure and extensive customer
relationships position us as an aggregator in the highly fragmented
ERS and related industrial parts market – and adding sought-after
technical capabilities and expanding the services we offer will allow
us to better serve our customers and drive improved product mix and
margin profile.
Improving Cost Structure and Processes
Investing in infrastructure and continuous improvement initiatives to
enhance customer service and to improve operating efficiency and
leverage in our business. Our current programs include the ongoing
optimization of our branch network, reviewing operating processes
for efficiency and effectiveness, and prudently managing our
balance sheet.
Continuing ERP Roll-out and Technology Improvements
Investing in information technology platforms to improve operating
efficiencies, and to improve customer and employee experience. Our
enterprise resource planning (“ERP”) roll-out continues to be an area
of focus and will be followed by additional technology improvements.
Wajax 2023 Annual Report 21
In addition to the forgoing, Wajax continues to develop its
environmental, social and governance programs (as outlined below
and further discussed in our 2023 Annual Report) and remains
committed to being a good steward of the environment, supporting
both internal stakeholders and the broader communities it operates
in, while upholding sound and ethical business practices.
Sustainability Roadmap
Areas
Priorities
Environment Wajax is committed to being a good steward of
the environment and ensuring that its operations
are managed with a clear focus on minimizing
its environmental impact and will increasingly
target initiatives that lower energy intensity and
reduce waste.
Wajax is also committed to offer increasingly
sustainable products, support renewable
industries, and help customers meet their own
environmental goals.
Social
Wajax believes its most important resource is
its people.
Wajax wants to ensure employees are safe on the job
and physically, mentally and financially healthy.
Wajax offers employees the ability to learn
continuously across a broad range of topics.
Wajax wants a diverse workforce that broadly
represents Canadian society.
Wajax believes that being a good corporate citizen
goes well beyond just providing employment. Wajax
wants to invest in and contribute to the communities
that it operates in across the country. The Corporation
does this through a combination of volunteer hours,
fundraising and in-kind donations.
Each of these elements is critical to providing world-
class service and solutions and the Corporation’s
overall, long-term success as an organization.
Governance Wajax values its reputation for fair dealing and
integrity and is committed to upholding high ethical
standards in the conduct of its business. Wajax wants
its customers to trust the Corporation to help them
find solutions across their business, and having high
ethical standards and strong governance practices in
place are key to maintaining their confidence.
Outlook
In 2023, Wajax celebrated its 165th anniversary, delivered record
revenue of $2,154.7 million, up 9.8% from 2022, and saw adjusted
basic earnings per share grow 19.1% to $3.88 over the previous year.(1)
Gross profit margin was 20.9% in 2023 versus 19.9% in 2022 due to
improved product mix and margin improvement initiatives, resulting in
an adjusted EBITDA margin of 9.2% in 2023 versus 8.5% in 2022.(1)
During the year, Wajax delivered significant value to shareholders
including a 32% increase in the quarterly dividend.
of 2022, which supports management’s confidence in the near-
term future.(1) In addition to expected growth in its heavy equipment
business over the long-term, Wajax continues to anticipate further
demand in its less cyclical industrial parts and ERS businesses,
which saw top-line growth of 12.9% and 28.6%, respectively, in 2023.
The 6% dividend increase announced today reflects the board’s and
management’s collective belief in its strategic vision.
Challenges associated with higher interest rates, wage and price
inflation, and a tight labour market, are expected to persist, and
management continues to monitor market dynamics and customer
sentiment for signs of possible weakness.
Management believes that the Corporation’s strong financial results
and solid balance sheet, coupled with the recently completed
$100.0 million increase in credit limit under its senior secured credit
facility, give it the flexibility to continue to invest in future organic
growth and acquisitions.
Management will be focused on six strategic priorities for 2024:
continuing to build a “people first” company; growing Wajax’s
existing business with a focus on parts, service and margin
improvement; unlocking the potential of Wajax’s enhanced direct
relationship with Hitachi; acquiring industrial parts and ERS
businesses; improving cost structure and processes; and continuing
Wajax’s enterprise resource planning system rollout and additional
technology improvements.
See the Cautionary Statement Regarding Forward-Looking
Information section.
Annual and Fourth Quarter Highlights
2023 Full Year Highlights
Revenue increased $191.9 million, or 9.8%, to a record
$2,154.7 million in 2023 from $1,962.8 million in 2022. The
increase in 2023 was driven primarily by higher industrial parts,
ERS and product support revenue across all regions, offset
partially by a decrease in mining equipment sales in western
Canada. From a regional perspective:
Revenue in western Canada of $975.8 million increased 4.3%
from the prior year due primarily to strong industrial parts
and ERS sales, and robust product support revenue in the
mining category. These increases were offset partially by lower
equipment sales, primarily in the mining category.
Revenue in central Canada of $387.9 million increased
22.0% from the prior year on higher sales across all revenue
types, including strong industrial parts and ERS sales, higher
equipment sales in the construction and forestry, and material
handling categories, and higher product support revenue across
all categories.
Revenue in eastern Canada of $791.0 million increased 11.6%
from the prior year due primarily to higher industrial parts and
ERS sales, as well as higher product support revenue across all
categories, and higher equipment sales in the construction and
forestry, and material handling categories.
Gross profit margin of 20.9% in 2023 increased 100 basis points
(“bps”) compared to 2022. The increase in margin was driven by
higher margins across all revenue types, and a higher proportion of
ERS and industrial parts sales.(1)
Moving into 2024, Wajax continues to see solid fundamentals in
many of the markets it serves – particularly mining, energy and
construction – supported by relatively elevated key commodity prices
and sustained customer budgeting for capital projects. Wajax began
2024 with strong backlog of $554.0 million, up 18.2% from the end
Selling and administrative expenses as a percentage of revenue
increased to 14.6% in 2023 from 14.1% in 2022. For the year
ended December 31, 2023, selling and administrative expenses
increased $38.7 million compared to last year. This increase
was due primarily to: higher personnel costs as the volume of
(1) “Backlog”, “Gross profit margin”, “Adjusted basic earnings per share”, and “Adjusted EBITDA margin” do not have standardized meanings prescribed by GAAP. See the Non-GAAP and Other
Financial Measures section.
22 Wajax 2023 Annual Report
Management’s Discussion and Analysis business increased over the prior year; an unrealized loss on
interest rate swaps of $1.2 million in the year, compared to a gain
of $5.3 million in the prior year; and facility closure, restructuring,
and other related costs of $1.9 million without a comparable cost
in the prior year. Excluding the $1.2 million loss on interest rate
swaps (2022 – gain of $5.3 million), and the $1.9 million facility
closure, restructuring, and other related costs (2022 – nil), selling
and administrative expenses as a percentage of revenue was
14.5% in 2023, versus 14.4% in 2022. The unrealized loss/gain
on interest rate swaps and the facility closure, restructuring, and
other related costs have been excluded in calculating the following
metrics: adjusted net earnings, adjusted EBIT, adjusted EBIT
margin, adjusted EBITDA, adjusted EBITDA margin, adjusted basic
earnings per share, and adjusted diluted earnings per share.(1)
EBIT increased $21.7 million, or 19.0%, to $135.5 million in
2023 versus $113.9 million in 2022. The year-over-year increase
resulted primarily from higher sales volumes, improved margins
across all revenue types, and a higher proportion of ERS and
industrial parts sales. This increase was partially offset by higher
selling and administrative expenses. Adjusted EBIT increased
$28.5 million, or 25.8%, to $138.9 million in 2023 from
$110.4 million in 2022, and adjusted EBIT margin increased to
6.4% in 2023 from 5.6% in 2022.(1)
The Corporation generated net earnings of $81.0 million, or $3.77
per share in 2023, versus $72.4 million, or $3.38 per share
in 2022. The Corporation generated adjusted net earnings of
$83.5 million, or $3.88 per share in 2023, versus $69.8 million,
or $3.26 per share in 2022. Adjusted net earnings for the year
ended December 31, 2023 excludes facility closure, restructuring,
and other related costs of $1.4 million after tax, or $0.07
per share (2022 – nil), non-cash losses on mark to market of
derivative instruments of $0.9 million after tax, or $0.04 per share
(2022 – gains of $2.6 million, or $0.12 per share), losses on the
change in fair value of contingent consideration of $0.2 million
after tax, or $0.01 per share (2022 – nil), and a gain recorded on
the sale of properties of $0.1 million after tax, or less than $0.01
per share (2022 – nil).(1)
Adjusted EBITDA margin increased to 9.2% in 2023 from
8.5% in 2022.(1)
Cash flows used in operating activities amounted to $89.0 million
in 2023, compared to cash generated of $69.1 million in
2022. The decrease in cash generated of $158.1 million was
mainly attributable to a decrease in accounts payable and
accrued liabilities of $29.9 million compared to an increase
of $115.9 million in the prior year, an increase in inventory of
$166.0 million compared to an increase of $72.9 million in the
prior year, as well as income taxes paid of $49.2 million compared
to $10.6 million in the prior year. This decrease in cash generated
was offset partially by an increase in net earnings excluding items
not affecting cash flow of $30.2 million, and a decrease in trade
and other receivables of $3.7 million compared to an increase of
$80.0 million in the prior year.
The Corporation’s backlog at December 31, 2023 of
$554.0 million increased $85.2 million, or 18.2%, compared
to December 31, 2022 due to higher mining, material handling
and ERS orders, offset partially by lower construction and
forestry orders.(1)
Working capital at December 31, 2023 increased $214.2 million
from December 31, 2022 due primarily to higher inventory levels,
lower accounts payable and accrued liabilities, and lower income
taxes payable. Working capital efficiency was 23.9% versus 16.8%
in 2022, due to the higher trailing four quarter average working
capital, largely resulting from higher average inventory levels.(1)
The Corporation’s leverage ratio increased to 1.98 times
at December 31, 2023 compared to 1.13 times at
December 31, 2022 due to the higher debt level in the
current year, driven largely by the Corporation’s investment
in inventory, timing on repayment of accounts payable and
accrued liabilities, and cash paid for business acquisitions in
the year. The Corporation’s senior secured leverage ratio was
1.64 times at December 31, 2023, compared to 0.71 times at
December 31, 2022.(1)
Effective January 23, 2023, Mark Edgar was appointed to the role
of Chief People Officer. Prior to joining Wajax, Mr. Edgar’s career
included extensive human resources experience gained as Senior
Vice President, Human Resources for Royal Sun Alliance Canada,
Head of Human Resources – Corporate, for Centrica plc, the
parent company of British Gas, and Head of Human Resources –
Customer Group, for British Sky Broadcasting plc (now Sky plc).
On March 6, 2023, Wajax announced a 32% increase in its
quarterly dividend.
During the second quarter of 2023, Justin Warren, Senior Vice
President, Industrial Parts and ERS, left the Corporation to pursue
another opportunity. Effective June 23, 2023, André Dubé was
appointed to the role of Senior Vice President, Industrial Parts
and ERS. Mr. Dubé has over 24 years of experience at Wajax, first
joining in 1999 as a strategic sourcing specialist. Since then, he
has held increasingly senior roles, including Vice President, Key
Accounts, and Vice President, End Market Mining. Most recently,
he served as Regional Vice President, Ontario and Québec.
On July 4, 2023, the Corporation acquired all of the issued and
outstanding shares of Calgary, Alberta-based Polyphase Engineered
Controls (1977) Ltd. (“Polyphase”) for an estimated aggregate
purchase price of approximately $23.2 million, subject to the
results of a three-year performance-based earnout. Specialized
in producing custom electrical and instrumentation equipment,
Polyphase employed approximately 44 people, including a team
of skilled wiring and panel assemblers, and operated facilities
in Calgary and Edmonton, Alberta. Polyphase added revenues of
$11.8 million and net earnings of $1.8 million from the date of
acquisition to December 31, 2023. Polyphase’s trailing twelve-
month revenue at the time of acquisition was approximately
$25.8 million.
On September 1, 2023, the Corporation acquired all of the
issued and outstanding shares of Sault Ste. Marie, Ontario-based
Beta Fluid Power Ltd., a supplier of hydraulic and pneumatic
equipment for use in the industrial, mining and construction
sectors (“Beta Fluid”), and Beta Industrial Ltd., a provider of
related maintenance, repair and replacement services (“Beta
Industrial”). The estimated aggregate purchase price for Beta
Fluid and Beta Industrial (together, “Beta”) was approximately
$8.5 million, subject to normal post-closing adjustments and the
results of a three-year performance-based earnout. The impact of
Beta on the Corporation’s revenues and net earnings from the date
of acquisition to December 31, 2023 was not significant. Beta’s
combined trailing twelve-month revenue at the time of acquisition
was approximately $16.7 million.
On November 6, 2023, Wajax announced the retirement of Steve
Deck, Chief Operating Officer, and Senior Vice President, Heavy
Equipment, effective January 1, 2024. After joining the Corporation
in 2014 to lead its industrial components business, Mr. Deck
held a number of senior executive roles and played a significant
role in executing the “One Wajax” strategy, building the vision for
Wajax’s industrial parts and ERS business, and developing Wajax’s
relationship with Hitachi.
Wajax 2023 Annual Report 23
Management’s Discussion and Analysis Subsequent to year-end and effective January 2, 2024, Wajax
completed adjustments to its senior management structure
following the retirement of Mr. Deck. Brian Deacon has been
appointed to the role of Senior Vice President, Category
Management, and André Dubé to the role of Senior Vice President,
Sales and Operations. Mr. Deacon first joined Wajax in 2011 after
14 years in the equipment industry, and has held increasingly
senior roles at the Corporation, including Regional Branch
Manager – Equipment, and Vice President, Service Operations.
Most recently, he was serving as Regional Vice President, Western
Canada. As noted above, Mr. Dubé first joined Wajax in 1999 as
a strategic sourcing specialist, and most recently, was serving as
Senior Vice President, Industrial Part and ERS.
Subsequent to year-end, on January 11, 2024, Wajax amended
its senior secured credit facility to increase the facility limit from
$400.0 million to $500.0 million. Such facility is now composed
of a $50.0 million non-revolving term facility and a $450.0 million
revolving term facility. There was no change to the maturity date of
the senior secured facility.
On March 4, 2024, the Corporation announced a 6% increase in its
quarterly dividend. A dividend of $0.35 per share was declared for
the first quarter of 2024, payable on April 2, 2024, to shareholders
of record on March 15, 2024.
Fourth Quarter Highlights
Revenue in the fourth quarter of 2023 increased $1.3 million, to
$542.6 million, from $541.3 million in the fourth quarter of 2022.
From a regional perspective:
selling and administrative expenses as a percentage of revenue
was 15.7% in the fourth quarter of 2023. The unrealized loss/gain
on interest rate swaps and the facility closure, restructuring, and
other related costs have been excluded in calculating the following
metrics: adjusted net earnings, adjusted EBIT, adjusted EBIT margin,
adjusted EBITDA, adjusted EBITDA margin, adjusted basic earnings
per share, and adjusted diluted earnings per share.(1)
EBIT decreased $4.1 million, or 15.5%, to $22.6 million in
the fourth quarter of 2023 versus $26.7 million in 2022. The
year-over-year decrease in EBIT resulted from higher selling and
administrative expenses, offset partially by higher margins, and a
higher proportion of ERS and product support sales. Adjusted EBIT
increased $3.4 million, or 12.1%, to $31.7 million in the fourth
quarter of 2023 from $28.2 million in the fourth quarter of 2022,
and adjusted EBIT margin increased to 5.8% in the fourth quarter
of 2023 from 5.2% in the same quarter of 2022.(1)
The Corporation generated net earnings of $11.1 million, or $0.52
per share, in the fourth quarter of 2023 versus $16.6 million, or
$0.78 per share, in 2022. The Corporation generated adjusted net
earnings of $17.8 million, or $0.83 per share, in both the fourth
quarter of 2023 and the fourth quarter of 2022. Adjusted net
earnings for the quarter excludes facility closure, restructuring, and
other related costs of $1.4 million after tax, or $0.07 per share
(2022 – nil), non-cash losses on mark to market of derivative
instruments of $5.0 million after tax, or $0.23 per share (2022 –
losses of $1.1 million after tax, or $0.05 per share), and losses on
the change in fair value of contingent consideration of $0.2 million
after tax, or $0.01 per share (2022 – nil).(1)
Revenue in western Canada of $235.6 million decreased
Adjusted EBITDA margin increased to 8.7% in the fourth quarter of
15.5% from the prior year due primarily to the timing of mining
equipment sales, as well as lower equipment sales in the
construction and forestry category, offset partially by strong
ERS sales.
Revenue in central Canada of $105.4 million increased 21.3%
from the prior year mainly due to strong ERS sales, higher
equipment sales in the construction and forestry category, and
higher product support revenue across all categories.
Revenue in eastern Canada of $201.7 million increased 14.8%
from the prior year due primarily to higher equipment and
product support sales in the construction and forestry category,
and strong industrial parts and ERS sales.
Gross profit margin of 21.2% in the fourth quarter of 2023
increased 310 bps compared to the same period of 2022. The
increase in margin was driven primarily by higher margins across
all revenue types, and a higher proportion of ERS and product
support sales as compared to equipment sales.(1)
Selling and administrative expenses as a percentage of revenue
increased to 17.1% in the fourth quarter of 2023 from 13.2% in the
fourth quarter of 2022. Selling and administrative expenses in the
fourth quarter of 2023 increased $21.2 million, or 29.6%, compared
to the fourth quarter of 2022 due primarily to: higher personnel
costs as the volume of ERS and product support business
increased over the prior year; an unrealized loss on interest rate
swaps of $5.5 million in the quarter, compared to a loss of less
than $0.1 million in the same quarter of the prior year; and facility
closure, restructuring, and other related costs of $1.9 million in the
quarter without a comparable cost in the same quarter of the prior
year. Excluding the $5.5 million loss on interest rate swaps, and the
$1.9 million facility closure, restructuring, and other related costs,
2023 from 7.8% in 2022.(1)
Cash flows generated from operating activities amounted
to $48.5 million in the fourth quarter of 2023, compared to
$19.1 million in the same quarter of the previous year. The
increase of $29.4 million was mainly attributable to a decrease in
accounts receivable of $3.9 million in the fourth quarter of 2023
compared to an increase of $33.0 million in the same quarter of
the previous year, and a decrease in inventory of $28.1 million
compared to an increase of $15.5 million in the same quarter
of the prior year. This increase in cash generated was offset
partially by a decrease in accounts payable and accrued liabilities
of $20.3 million compared to an increase of $38.1 million in the
same quarter of the prior year.
The Corporation’s backlog at December 31, 2023 of
$554.0 million decreased $45.3 million, or 7.6%, compared to
September 30, 2023 due primarily to lower construction and
forestry orders.(1)
Working capital of $560.2 million at December 31, 2023
decreased $31.2 million from September 30, 2023, due primarily
to lower inventory levels. Working capital efficiency was 23.9%, an
increase of 250 bps from September 30, 2023, due to the higher
trailing four-quarter average working capital.(1)
The Corporation’s leverage ratio decreased to 1.98 times
at December 31, 2023, compared to 2.16 times at
September 30, 2023. The decrease in the leverage ratio
was due to the lower debt level in the current period, driven
largely by cash generated from operating activities during the
quarter. The Corporation’s senior secured leverage ratio was
1.64 times at December 31, 2023, compared to 1.82 times at
September 30, 2023.(1)
(1) “Backlog”, “Working capital”, “Gross profit margin”, “Selling and administrative expenses as a percentage of revenue”, “Working capital efficiency”, “Leverage ratio”, “Senior secured leverage
ratio”, “Adjusted net earnings”, “Adjusted basic and diluted earnings per share”, “Adjusted EBIT”, “Adjusted EBIT margin”, “Adjusted EBITDA”, and “Adjusted EBITDA margin” do not have
standardized meanings prescribed by GAAP. See the Non-GAAP and Other Financial Measures section.
24 Wajax 2023 Annual Report
Management’s Discussion and Analysis Summary of Operating Results
Statement of earnings highlights
2023
2022
% change
Revenue
$ 2,154.7 $ 1,962.8
$
450.6 $
390.3
315.1
276.5
14.0%
$
135.5 $
25.9
113.9
17.3
$
109.6 $
28.7
81.0 $
96.5
24.1
72.4
3.77 $
3.38
3.64 $
3.26
69.8
$
$
$
Adjusted net earnings(1)(3) $
83.5 $
Gross profit
Selling and
administrative
expenses
Earnings before
finance costs and
income taxes
Finance costs
Earnings before
income taxes
Income tax expense
Net earnings
– Basic earnings
per share(2)
– Diluted earnings
per share(2)
– Adjusted basic
earnings
per share(1)(2)(3)
– Adjusted diluted
earnings
per share(1)(2)(3)
Adjusted EBIT(1)
Adjusted EBITDA(1)
9.8%
15.5%
19.0%
49.1%
13.6%
18.9%
11.9%
11.4%
11.5%
19.5%
Statement of financial position highlights
As at December 31
Trade and other receivables
Inventory
Accounts payable and accrued liabilities
Other working capital amounts(1)
$
Working capital(1)
Rental equipment
Property, plant and equipment
Funded net debt(1)
Key ratios:
Leverage ratio(1)
Senior secured leverage ratio(1)
$
$
$
$
2023
309.1 $
630.9
(407.1)
27.3
2022
307.1
462.2
(423.8)
0.7
560.2 $
346.0
42.5 $
44.8 $
39.4
44.1
325.5 $
144.6
1.98
1.64
1.13
0.71
(1) These measures do not have a standardized meaning prescribed by GAAP. See the
Non-GAAP and Other Financial Measures section.
(2) Weighted average shares, net of shares held in trust, outstanding for calculation of basic
and diluted earnings per share for the year ended December 31, 2023 was 21,509,250
(2022 – 21,423,140) and 22,271,628 (2022 – 22,196,918), respectively.
(3) Net earnings excluding the following:
a. after-tax facility closure, restructuring, and other related costs of $1.4 million (2022 –
nil), or basic and diluted loss per share of $0.07 and $0.06, respectively (2022 – nil) for
the year ended December 31, 2023.
b. after-tax gain recorded on the sale of properties of $0.1 million (2022 – nil), or basic
and diluted earnings per share of less than $0.01 (2022 – nil) for the year ended
December 31, 2023.
c. after-tax non-cash losses on mark to market of derivative instruments of $0.9 million
(2022 – gains of $2.6 million), or basic and diluted loss per share of $0.04 (2022 –
earnings per share of $0.12) for the year ended December 31, 2023.
d. after-tax losses on the change in fair value of contingent consideration of $0.2 million
(2022 – nil), or basic and diluted loss per share of $0.01 (2022 – nil) for the year ended
December 31, 2023.
$
3.88 $
3.26
19.1%
$
$
$
3.75 $
3.15
138.9 $
110.4
197.4 $
165.9
19.1%
25.8%
19.0%
Results of Operations
Revenue
Key ratios:
Gross profit margin(1)
Selling and
administrative
expenses as a
percentage of revenue(1)
EBIT margin(1)
Adjusted EBIT margin(1)
Adjusted EBITDA margin(1)
Effective income tax rate
20.9%
19.9%
14.6%
6.3%
6.4%
9.2%
26.1%
14.1%
5.8%
5.6%
8.5%
25.0%
Revenue by Geographic Region ($ millions)
For the year ended December 31, 2023, revenue increased 9.8%, or
$191.9 million, to $2,154.7 million, from $1,962.8 million in 2022.
The following factors contributed to the increase in revenue:
ERS sales increased 28.6% due to higher sales in all regions,
particularly in western and eastern Canada.
Industrial parts sales increased 12.9% due to higher sales in all
regions, particularly in eastern Canada.
Product support sales increased 12.3% due to higher mining
revenue in all regions, particularly in western Canada, and higher
power systems, construction and forestry, and material handling
sales in all regions.
For the year ended December 31
2023
$ change
% change
■ Western Canada
■ Central Canada
■ Eastern Canada(1)
Total
$ 975.8 $
387.9
791.0
39.9
70.1
81.9
$ 2,154.7 $ 191.9
4.3 %
22.0 %
11.6 %
9.8 %
(1) Includes Quebec and the Atlantic provinces.
For the year ended December 31
2022
■ Western Canada
■ Central Canada
■ Eastern Canada(1)
Total
$ 935.9
317.9
709.0
$ 1,962.8
Revenue by End Market
For the year ended December 31
2023
■ Construction
■ Mining
■ Industrial/Commercial
■ Forestry
■ Oil and Gas
■ Oil Sands
■ Transportation
■ Government and Utilities
■ Metal Processing
■ Other
16%
15%
13%
11%
10%
9%
7%
6%
5%
8%
For the year ended December 31
2022
■ Mining
■ Construction
■ Industrial/Commercial
■ Forestry
■ Oil Sands
■ Oil and Gas
■ Transportation
■ Metal Processing
■ Government and Utilities
■ Other
16%
16%
13%
12%
9%
9%
7%
6%
5%
7%
Wajax 2023 Annual Report 25
Management’s Discussion and Analysis
Revenue Sources ($ millions)
For the year ended December 31
2023
$ change
% change
For the year ended December 31
2022
■ Equipment sales
■ Product support
■ Industrial parts
■ Engineered repair
services (ERS)
■ Equipment rental
$ 607.1 $
543.3
605.1
(21.5)
59.4
69.3
354.3
45.0
78.8
5.8
Total
$ 2,154.7 $ 191.9
(3.4) %
12.3 %
12.9 %
28.6 %
14.9 %
9.8 %
■ Equipment sales
■ Product support
■ Industrial parts
■ Engineered repair
services (ERS)
■ Equipment rental
Total
$ 628.6
483.9
535.8
275.5
39.1
$ 1,962.8
Equipment sales decreased 3.4% due primarily to lower mining
sales in western Canada and lower power systems sales in
eastern Canada, offset partially by higher construction and forestry
sales in central and eastern Canada, and higher material handling
sales in all regions.
Backlog
The Corporation’s backlog at December 31, 2023 of $554.0 million
increased $85.2 million, or 18.2%, compared to December 31, 2022
due to higher mining, material handling and ERS orders, offset
partially by lower construction and forestry orders.(1)
Gross profit
For the year ended December 31, 2023, gross profit increased
$60.3 million, or 15.5%, compared with the same period last year,
primarily due to higher sales volumes, higher margins, and a higher
proportion of ERS and industrial parts sales.
For the year ended December 31, 2023, gross profit margin of 20.9%
increased 100 bps compared with the same period of 2022. This
increase in margin was driven by higher margins across all revenue
types, and a higher proportion of ERS and industrial parts sales.(1)
Selling and administrative expenses
For the year ended December 31, 2023, selling and administrative
expenses increased $38.7 million compared with the same period
last year. This increase was due primarily to higher personnel
costs as the volume of business increased over the prior year, an
unrealized loss on interest rate swaps of $1.2 million in the year
compared to a gain of $5.3 million in the prior year, and facility
closure, restructuring, and other related costs of $1.9 million without
a comparable cost in the prior year.
Selling and administrative expenses as a percentage of revenue
increased to 14.6% in 2023 from 14.1% in 2022. Excluding the
$1.2 million loss on interest rate swaps (2022 – gain of $5.3 million)
and the $1.9 million facility closure, restructuring, and other related
costs (2022 – nil), selling and administrative expenses as a percentage
of revenue was 14.5% in 2023, versus 14.4% in 2022.(1) The
unrealized loss/gain on interest rate swaps and the facility closure,
restructuring, and other related costs have been excluded in
calculating the following metrics: adjusted net earnings, adjusted
EBIT, adjusted EBIT margin, adjusted EBITDA, adjusted EBITDA
margin, adjusted basic earnings per share, and adjusted diluted
earnings per share.(1)
Finance costs
For the year ended December 31, 2023, finance costs of
$25.9 million increased $8.5 million compared with the same period
in 2022 due primarily to higher interest rates and higher average
borrowings under the bank credit facility. See the Liquidity and Capital
Resources section.
At December 31, 2023, 63.4% of the Corporation’s funded net debt
was at a fixed interest rate.(1)
Income tax expense
The Corporation’s effective income tax rate of 26.1% for the year
ended December 31, 2023, was higher compared with the statutory
rate of 26.0% due mainly to the impact of expenses not deductible
for tax purposes. The Corporation’s effective income tax rate of
25.0% for the same period in 2022 was lower compared with the
statutory rate of 26.0% due mainly to the impact of changes in
estimates related to prior years as a result of the settlement of an
uncertain tax position.
Net earnings
For the year ended December 31, 2023, the Corporation generated
net earnings of $81.0 million, or $3.77 per share, compared with
$72.4 million, or $3.38 per share, in 2022. The $8.6 million
increase in net earnings resulted primarily from higher sales volumes,
improved margins, and a higher proportion of ERS and industrial
parts sales, offset partially by higher selling and administrative
expenses and higher finance costs.
Adjusted net earnings(1)
Adjusted net earnings for the year ended December 31, 2023
excludes facility closure, restructuring, and other related costs of
$1.4 million after tax, or $0.07 per share (2022 – nil), non-cash
losses on mark to market of derivative instruments of $0.9 million
after tax, or $0.04 per share (2022 – gains of $2.6 million, or
$0.12 per share), losses on the change in fair value of contingent
consideration of $0.2 million after tax, or $0.01 per share (2022 –
nil), and a gain recorded on the sale of properties of $0.1 million
after tax, or less than $0.01 per share (2022 – nil).(1)
As such, adjusted net earnings increased $13.6 million to
$83.5 million, or $3.88 per share, for the year ended
December 31, 2023 from $69.8 million, or $3.26 per share, in 2022.(1)
Comprehensive income
For the year ended December 31, 2023, the total comprehensive
income of $76.1 million included net earnings of $81.0 million
and an other comprehensive loss of $4.9 million. The other
comprehensive loss of $4.9 million in the current year resulted from
$2.2 million of realized after-tax gains on derivatives designated as
cash flow hedges, reclassified to net earnings during the period, and
$2.3 million of unrealized after-tax losses on derivatives designated
as cash flow hedges.
(1) “Funded net debt”, “Backlog”, “Gross profit margin”, “Selling and administrative expenses as a percentage of revenue”, “Adjusted net earnings”, “Adjusted EBIT”, “Adjusted EBIT margin”,
“Adjusted EBITDA”, “Adjusted EBITDA margin”, “Adjusted basic earnings per share”, and “Adjusted diluted earnings per share” do not have standardized meanings prescribed by GAAP. See the
Non-GAAP and Other Financial Measures section.
26 Wajax 2023 Annual Report
Management’s Discussion and Analysis
Selected Annual Information
The following selected annual information has been prepared
on the same basis as the 2023 annual audited consolidated
financial statements.
For the year ended December 31
2023
2022
2021
Revenue
$ 2,154.7 $ 1,962.8 $ 1,637.3
$
Net earnings
Basic earnings per share $
Diluted earnings
per share
$
81.0 $
3.77 $
72.4 $
3.38 $
53.2
2.50
3.64 $
3.26 $
2.42
Total assets
Non-current liabilities
Dividends declared
per share
$ 1,473.3 $ 1,249.9 $ 1,080.8
323.0
$
493.7 $
286.0 $
$
1.32 $
1.00 $
1.00
Starting in 2020 and continuing into 2021, the COVID-19 pandemic
resulted in governments and public health authorities worldwide
enacting emergency measures to combat the spread of the novel
coronavirus and its variants, including the implementation of travel
bans, physical distancing, self-isolation and quarantine periods.
These measures impacted economies and financial markets
worldwide, resulting in an economic slowdown that negatively affected
the Corporation’s end markets, supply chains, and financial results,
most notably during 2020, with some lingering effects in 2021.
Revenue in 2023 of $2,154.7 million increased $191.9 million
compared to 2022. The increase in 2023 was driven primarily by
higher industrial parts, ERS, and product support revenue across all
regions, offset partially by a decrease in mining equipment sales in
western Canada. Revenue in 2022 of $1,962.8 million increased
$325.5 million compared to 2021. While Wajax saw revenue
increases across all categories in 2022, the favourable variance was
notably driven by industrial parts strength in all regions, higher ERS
revenue in western Canada, and robust western Canada equipment
sales in the construction and forestry, and mining categories.
Net earnings in 2023 of $81.0 million increased $8.6 million,
or 11.9%, from 2022. The increase in net earnings resulted
primarily from higher sales volumes, improved margins, and a
higher proportion of ERS and industrial parts sales, offset partially
by increased selling and administrative expenses and higher
finance costs. The Corporation generated adjusted net earnings of
$83.5 million, or $3.88 per share in 2023, versus $69.8 million,
or $3.26 per share in 2022. Net earnings in 2022 of $72.4 million
increased $19.2 million, or 36.0%, from 2021. The increase in net
earnings resulted primarily from higher sales volumes and higher
equipment and industrial parts margins. These increases were
offset partially by lower product support and ERS margins, a higher
proportion of equipment sales, higher selling and administrative
expenses, and the 2021 recovery of personnel expenses from
the Canada Emergency Wage Subsidy program without a similar
recovery in 2022.
The $392.5 million increase in total assets from December 31, 2021
to December 31, 2023 was mainly attributable to higher inventory
of $242.2 million, increased trade and other receivables of
$85.6 million, higher goodwill and intangible assets of $18.9 million,
and increased contract assets of $32.5 million.
Non-current liabilities at December 31, 2023 of $493.7 million
increased $170.7 million from December 31, 2021, primarily
attributable to an increase in long-term debt of $169.5 million.
Selected Quarterly Information
The following table summarizes unaudited quarterly consolidated financial data for the eight most recently completed quarters.
Revenue
Net earnings
Earnings per share
– Basic
– Diluted
Adjusted net earnings(1)
Adjusted earnings per share(1)
– Basic
– Diluted
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
2023
2022
$ 542.6 $ 509.7 $ 586.2 $ 516.1 $ 541.3 $ 470.8 $ 511.2 $ 439.5
$
11.1 $
23.4 $
29.0 $
17.5 $
16.6 $
18.0 $
21.7 $
16.1
$
$
0.52 $
0.50 $
1.09 $
1.05 $
1.35 $
1.31 $
0.81 $
0.79 $
0.78 $
0.75 $
0.84 $
0.81 $
1.01 $
0.98 $
0.75
0.73
$
17.8 $
20.7 $
27.1 $
17.8 $
17.8 $
16.7 $
19.7 $
15.7
$
$
0.83 $
0.80 $
0.96 $
0.93 $
1.26 $
1.22 $
0.83 $
0.80 $
0.83 $
0.80 $
0.78 $
0.75 $
0.92 $
0.89 $
0.73
0.71
Dividends declared per share
$
0.33 $
0.33 $
0.33 $
0.33 $
0.25 $
0.25 $
0.25 $
0.25
Weighted average common shares
outstanding – basic (in thousands)
21,570
21,490
21,487
21,489
21,453
21,400
21,424
21,415
(1) These measures do not have a standardized meaning prescribed by GAAP. See the Non-GAAP and Other Financial Measures section.
Although quarterly fluctuations in revenue and net earnings are
difficult to predict, during times of weak resource sector activity, the
first quarter will tend to have seasonally lower revenues. However,
the project timing of large mining trucks and shovels and power
generation packages can shift revenue and net earnings throughout
the year. In addition, the sale of large construction units can also
impact revenue due to the seasonality in that industry. In the fourth
quarter of 2022, the Corporation sold several large mining shovels
resulting in particularly strong revenue in the quarter.
Effective July 4, 2023, the Corporation acquired Polyphase, and
effective September 1, 2023, the Corporation acquired Beta. The
results of operations and financial position of these acquired
businesses have been included in the above figures since the dates
of acquisition. The acquisition of Polyphase facilitated year-over-year
growth in the Corporation’s revenue when comparing 2023 to 2022,
adding $11.8 million in incremental revenue and $1.8 million in
incremental net earnings in 2023. Beta’s combined impact on the
Corporation’s revenues and net earnings from the date of acquisition
to December 31, 2023 was not significant.
Wajax 2023 Annual Report 27
Management’s Discussion and Analysis
A discussion of Wajax’s previous quarterly results can be found in
Wajax’s quarterly MD&A available under the Corporation’s profile on
SEDAR+ at www.sedarplus.ca.
Consolidated Financial Condition
Capital Structure and Key Financial Condition Measures
Shareholders’ equity
Funded net debt(1)
Total capital(1)
December 31
2023
496.2 $
325.5
2022
449.8
144.6
$
$
821.7 $
594.4
Funded net debt to total capital(1)
39.6%
24.3%
Leverage ratio(1)
Senior secured leverage ratio(1)
1.98
1.64
1.13
0.71
(1) These measures do not have standardized meanings prescribed by GAAP. See the Non-GAAP
and Other Financial Measures section.
The Corporation’s objective is to manage its working capital and
normal-course capital investment programs within a leverage range of
1.5 to 2.0 times and to fund those programs through operating cash
flow and its bank credit facilities as required. There may be instances
whereby the Corporation is willing to maintain a leverage ratio outside
of this range during changes in economic cycles. The Corporation
may also maintain a leverage ratio above the stated range as a result
of investments in acquisitions and may fund those acquisitions using
its bank credit facilities and other debt instruments in accordance
with the Corporation’s expectations of total future cash flows,
financing costs and other factors. The Corporation’s leverage ratio is
currently within the target range. See the Funded Net Debt section.
Shareholders’ Equity
The Corporation’s share capital included in shareholders’ equity on
the consolidated statements of financial position, consists of:
Number of
Common
Shares
Amount
Issued and outstanding,
December 31, 2022
Common shares issued to settle
share-based compensation plans
21,602,836 $
208.8
207,575
2.6
21,810,411 $
211.3
(131,734)
74,149
(1.2)
0.7
(83,280)
(0.8)
Issued and outstanding,
December 31, 2023
Shares held in trust,
December 31, 2022
Released for settlement of certain
share-based compensation plans
Purchased for future settlement
of certain share-based
compensation plans
Shares held in trust,
December 31, 2023
Issued and outstanding,
net of shares held in trust,
December 31, 2023
At the date of this MD&A, the Corporation had 21,669,546 common
shares issued and outstanding, net of shares held in trust.
At December 31, 2023, Wajax had four share-based compensation
plans; the Wajax Share Ownership Plan (the “SOP”), the Directors’
Deferred Share Unit Plan (the “DDSUP”), the Mid-Term Incentive
Plan for Senior Executives (the “MTIP”) (with MTIP awards being
composed of performance share units (“PSUs”) and restricted share
units (“RSUs”)) and the Deferred Share Unit Plan (the “DSUP”).
Each fully vested right under the SOP and DDSUP is settled
by the issuance of a common share from treasury. As of
December 31, 2023, there were a total of 399,288 rights
outstanding under the SOP and DDSUP, of which 386,584 were fully
vested. Each fully vested MTIP PSU and certain fully vested deferred
share units issued under the DSUP (“equity settled DSUs”) are
settled by the delivery of a market-purchased common share. As
of December 31, 2023, a total of 256,622 MTIP PSUs and equity
settled DSUs were outstanding, of which 33,796 were fully vested.
Each fully vested MTIP RSU and non-equity settled DSUs (“cash
settled DSUs”) are settled in cash. As of December 31, 2023, a total
of 479,146 MTIP RSUs and cash settled DSUs were outstanding,
of which 11,816 were fully vested. Depending on the actual level
of achievement of the performance targets associated with the
outstanding MTIP PSUs, the number of market-purchased shares
required to satisfy the Corporation’s obligations thereunder could be
higher or lower.
Wajax recorded compensation expense of $9.4 million for the year
ended December 31, 2023 (2022 – expense of $5.4 million) in
respect of these plans.
Funded Net Debt
December 31
2023
$
1.4 $
56.3
267.8
2022
5.2
55.8
83.6
$
325.5 $
144.6
Funded net debt of $325.5 million at December 31, 2023 increased
$180.9 million compared to $144.6 million at December 31, 2022.(1)
The increase during the year was due primarily to cash used in
operating activities of $89.0 million driven largely by an investment in
inventory and timing on repayment of accounts payable and accrued
liabilities, the payment of lease liabilities of $35.5 million, dividends
paid of $26.7 million, and the net cash paid of $21.0 million on
business acquisitions.
The Corporation’s ratio of funded net debt to total capital increased
to 39.6% at December 31, 2023 from 24.3% at December 31, 2022
due to the higher funded net debt level in the current year.(1)
The Corporation’s leverage ratio of 1.98 times at December 31, 2023
increased from the December 31, 2022 ratio of 1.13 times due to
the higher debt level in the current year. However, the leverage ratio
decreased compared to the September 30, 2023 leverage ratio of
2.16 times, due to the lower debt level at December 31, 2023,
driven largely by cash generated from operating activities during
the quarter.(1)
The Corporation’s shareholders’ equity at December 31, 2023 of
$496.2 million increased $46.5 million from December 31, 2022,
due primarily to total comprehensive income of $76.1 million, offset
partially by dividends declared of $28.4 million.
Bank indebtedness
Debentures
Long-term debt
Funded net debt(1)
(140,865) $
(1.3)
See the Liquidity and Capital Resources section.
21,669,546 $
210.0
(1) “Funded net debt”, “Funded net debt to total capital”, “Total capital”, and “Leverage ratio” do not have standardized meanings prescribed by GAAP. See the Non-GAAP and Other Financial
Measures section.
28 Wajax 2023 Annual Report
Management’s Discussion and Analysis
Financial Instruments
Wajax uses derivative financial instruments in the management of
its foreign currency, interest rate and share-based compensation
exposures. Wajax policy restricts the use of derivative financial
instruments for trading or speculative purposes.
Wajax monitors the proportion of variable rate debt to its total debt
portfolio and may enter into interest rate hedge contracts to mitigate
a portion of the interest rate risk on its variable rate debt. A change
in interest rates, in particular related to the Corporation’s unhedged
variable rate debt, is not expected to have a material impact on the
Corporation’s results of operations or financial condition over the
long term.
Wajax has entered into interest rate swap contracts to minimize
exposure to interest rate fluctuations on its variable rate debt.
All interest rate swap contracts are recorded in the consolidated
financial statements at fair value. As at December 31, 2023, Wajax
had the following interest rate swap contracts outstanding:
$150.0 million, expiring October 2026 to October 2027, with a
weighted average interest rate of 2.32% (December 31, 2022 –
$150.0 million, expiring October 2026 to October 2027, with a
weighted average interest rate of 2.32%)
Wajax enters into foreign exchange forward contracts to hedge
the exchange risk associated with the cost of certain inbound
inventory and foreign currency-denominated sales to customers
along with the associated receivables as part of its normal course
of business. As at December 31, 2023, Wajax had the following
contracts outstanding:
to buy U.S. $195.2 million (December 31, 2022 – to buy
U.S. $135.6 million),
to buy Euro €7.3 million (December 31, 2022 – to buy
Euro €0.4 million),
to sell U.S. $77.9 million (December 31, 2022 – to sell
U.S. $37.5 million), and
to sell Euro €1.6 million (December 31, 2022 – to sell
Euro €0.6 million).
The U.S. dollar contracts expire between January 2024 to December
2025, with an average U.S./Canadian dollar rate of 1.3485.
The Euro contracts expire between January 2024 to October 2024,
with an average Euro/Canadian dollar rate of 1.4667.
Wajax has entered into total return swap contracts to hedge the
exposure to share price market risk on a class of MTIP units that
are cash-settled. All total return swap contracts are recorded
in the consolidated financial statements at fair value. As at
December 31, 2023, Wajax had the following total return swap
contracts outstanding:
contracts totaling 399,000 shares at an initial share value of
$9.1 million (December 31, 2022 – contracts totaling 402,000
shares at an initial share value of $7.8 million).
The total return swap contracts expire between March 2024 and
March 2026.
Wajax measures derivatives not designated as hedging instruments
at fair value with subsequent changes in fair value being recorded in
earnings. Derivatives designated as effective hedges are measured
at fair value with subsequent changes in fair value being recorded
in other comprehensive income until the related hedged item is
recorded and affects income or inventory. The fair value of derivative
instruments is estimated based upon market conditions using
appropriate valuation models.
A change in foreign currency value, relative to the Canadian dollar,
on transactions with customers that include unhedged foreign
currency exposures is not expected to have a material impact on the
Corporation’s results of operations or financial condition over the
longer term.
Wajax will periodically institute price increases to offset the negative
impact of foreign exchange rate increases and volatility on imported
goods to ensure margins are not eroded. However, a sudden
strengthening of the U.S. dollar relative to the Canadian dollar can
have a negative impact mainly on parts margins in the short term
prior to price increases taking effect.
The impact of a change in the Corporation’s share price on cash-
settled MTIP units is not expected to have a material impact on the
Corporation’s results of operations or financial condition over the
longer term.
Wajax is exposed to the risk of non-performance by counterparties
to foreign exchange forward contracts, long-term interest rate swap
contracts and total return swap contracts. These counterparties are
large financial institutions that maintain high short-term and long-term
credit ratings. To date, no such counterparty has failed to meet its
financial obligations to Wajax. Management does not believe there is
a significant risk of non-performance by these counterparties and will
continue to monitor the credit risk of these counterparties.
Contractual Obligations
Contractual Obligations
Accounts payable and accrued liabilities
Undiscounted lease obligations
Long-term debt
Debentures
$
Total
407.1 $
238.5
268.6
57.0
< 1
year
1 – 3
years
3 – 5
years
After
5 years
407.1 $
— $
— $
49.2
—
—
81.0
—
57.0
51.7
268.6
—
—
56.6
—
—
56.6
Total
$
971.2 $
456.3 $
138.0 $
320.3 $
The lease obligations relate to contracts to lease properties for
the Corporation’s branch network, certain vehicles, computer
hardware, and equipment. The long-term debt obligation relates
to the bank credit facility, and the debentures obligation relates
to the senior unsecured debentures. See the Liquidity and Capital
Resources section.
Related Party Transactions
The Corporation’s related party transactions, consisting of the
compensation of the Board of Directors and key management
personnel, totaled $9.6 million in 2023 (2022 – $7.2 million).
Off-Balance Sheet Arrangements
The Corporation has no off-balance sheet arrangements as at
December 31, 2023.
Wajax 2023 Annual Report 29
Management’s Discussion and Analysis
Liquidity and Capital Resources
The Corporation’s liquidity is maintained through various sources,
including bank and non-bank credit facilities, debentures and cash
generated from operations.
Bank and Non-bank Credit Facilities and Debentures
As at December 31, 2023, Wajax had a $400.0 million credit limit
on its bank credit facility, composed of a $50.0 million non-revolving
term facility and a $350.0 million revolving term facility, maturing on
October 1, 2027.
At December 31, 2023, Wajax had borrowed $268.6 million and
issued $4.8 million of letters of credit for a total utilization of
$273.4 million of its $400.0 million bank credit facility. Borrowing
capacity under the bank credit facility is dependent on the level of
inventories on-hand and outstanding trade accounts receivables. At
December 31, 2023, borrowing capacity under the bank credit facility
was equal to $400.0 million, of which $126.6 million was accessible
to the Corporation.
The bank credit facility contains customary restrictive covenants,
including limitations on the payment of cash dividends and an
interest coverage maintenance ratio, all of which were met as at
December 31, 2023. In particular, the Corporation is restricted from
declaring dividends in the event the Corporation’s senior secured
leverage ratio, as defined in the bank credit facility agreement,
exceeds 4.0 times. At December 31, 2023, the Corporation’s senior
secured leverage ratio was 1.64 times.
As at December 31, 2023, borrowings under the bank credit facility
were subject to floating rates of interest at margins over Canadian
dollar bankers’ acceptance yields, U.S. dollar Secured Overnight
Financing Rate (“SOFR”) rates or prime. Margins on the facility
depended on the Corporation’s leverage ratio at the time of borrowing
and ranged between 1.5% and 3.0% for Canadian dollar bankers’
acceptances and U.S. dollar SOFR borrowings, and 0.5% and 2.0%
for prime rate borrowings.
In addition, Wajax had $57.0 million of senior unsecured debentures
outstanding at December 31, 2023, bearing interest at a rate
of 6.00% per annum, payable semi-annually and maturing on
January 15, 2025. On and after January 15, 2023 and prior to
January 15, 2024, the debentures are redeemable in whole or in part
from time to time at the Corporation’s option at a redemption price
equal to 103.0% of the principal amount of the debentures redeemed
plus accrued and unpaid interest, if any, up to but excluding the
date set for redemption. On and after January 15, 2024 and prior
to the maturity date, the debentures will be redeemable, in whole
or in part, from time to time at the Corporation’s option at par plus
accrued and unpaid interest, if any, up to but excluding the date set
for redemption. As at December 31, 2023, the Corporation has not
redeemed any of the debentures. The Corporation shall provide not
more than 60 nor less than 30 days’ prior notice of redemption of
the debentures.
The Corporation will have the option to satisfy its obligation to repay
the principal amount of the debentures due at redemption or maturity
in either cash or freely tradable common shares determined in
accordance with the terms of the indenture governing the debentures.
The debentures will not be convertible into common shares at the
option of the holders at any time.
Under the terms of the bank credit facility, Wajax is permitted to have
additional interest bearing debt of $25.0 million. As such, Wajax has
up to $25.0 million of demand inventory equipment financing capacity
with two non-bank lenders. At December 31, 2023, Wajax had no
utilization of the interest bearing equipment financing facilities.
In addition, the Corporation has an agreement with a financial
institution to sell 100% of selected trade accounts receivable on a
recurring, non-recourse basis. Under this facility, up to $20.0 million
30 Wajax 2023 Annual Report
of accounts receivable is permitted to be sold to the financial
institution and can remain outstanding at any point in time. After
the sale, Wajax does not retain any interests in the accounts
receivable, but continues to service and collect the outstanding
accounts receivable on behalf of the financial institution. As
at December 31, 2023, the Corporation continues to service
and collect $6.1 million in accounts receivable on behalf of the
financial institution.
On January 11, 2024, the Corporation amended its senior secured
credit facility to increase the facility limit from $400.0 million to
$500.0 million. Such facility is now composed of a $50.0 million
non-revolving term facility and a $450.0 million revolving term facility.
There was no change to the maturity date of the senior secured
facility. As part of the bank credit facility amendment, the Canadian
dollar bankers’ acceptances were replaced with the term Canadian
Overnight Repo Rate Average (“CORRA”) loan. Borrowings under
the bank credit facility bear floating rates of interest at margins over
Canadian dollar term CORRA loan yields, U.S. dollar SOFR rates or
prime. Margins on the facility continue to depend on the Corporation’s
leverage ratio at the time of borrowing. Effective January 11, 2024,
the margins range between 1.8% and 3.3% for Canadian dollar term
CORRA loans and U.S. dollar SOFR borrowings, and between 0.8%
and 2.3% for prime rate borrowings.
As of March 4, 2024, Wajax continues to maintain its $500.0 million
bank credit facility and an additional $25.0 million in credit facilities
with non-bank lenders. Wajax maintains sufficient liquidity to meet
short-term normal course working capital and maintenance capital
requirements and fund certain strategic investments. However, Wajax
may be required to access the equity or debt capital markets to fund
significant acquisitions.
The Corporation’s tolerance to interest rate risk decreases/increases
as the Corporation’s leverage ratio increases/decreases. At
December 31, 2023, 63.4% of the Corporation’s funded net debt was
at a fixed interest rate which is within the Corporation’s interest rate
risk policy.
Cash Flow
The following table highlights the major components of cash flow as
reflected in the Consolidated Statements of Cash Flows for the years
ended December 31, 2023 and December 31, 2022:
2023
2022
$ Change
81.0 $
72.4 $
8.6
120.3
98.8
21.6
(200.6)
(65.0)
(135.6)
(16.2)
(9.2)
(7.0)
(8.9)
(49.2)
(20.9)
3.5
1.8
(7.9)
(10.6)
(10.9)
2.6
(1.1)
(1.0)
(38.6)
(10.0)
1.0
2.9
(89.0) $
69.1 $
(158.1)
(24.6) $
(14.3) $
(10.3)
$
Net earnings
Items not affecting
cash flow
Changes in non-cash
operating working
capital
Finance costs paid
on debts
Finance costs paid
on lease liabilities
Income taxes paid
Rental equipment additions
Rental equipment disposals
Other
Cash (used in) generated
from operating
activities
Cash used in
investing activities
Cash generated from
(used in) financing
$
$
activities
$
117.5 $
(70.0) $
187.5
Management’s Discussion and Analysis
Operating Activities
For the year ended December 31, 2023, cash flows used in operating
activities amounted to $89.0 million, compared to cash flows
generated from operating activities of $69.1 million for the previous
year. The decrease in cash generated of $158.1 million was mainly
attributable to a decrease in accounts payable and accrued liabilities
of $29.9 million compared to an increase of $115.9 million in the
prior year, an increase in inventory of $166.0 million compared to an
increase of $72.9 million in the prior year, as well as income taxes
paid of $49.2 million compared to $10.6 million in the prior year. This
decrease in cash generated was offset partially by an increase in net
earnings excluding items not affecting cash flow of $30.2 million, and
a decrease in trade and other receivables of $3.7 million compared
to an increase of $80.0 million in the prior year.
For the year ended December 31, 2023, rental equipment additions
of $20.9 million (2022 – $10.9 million) related primarily to material
handling lift trucks.
Changes in significant components of non-cash operating
working capital for the years ended December 31, 2023 and
December 31, 2022 include the following:
Changes in Non-cash
Operating Working Capital (1)
2023
2022
$ Change
Trade and other
receivables
Contract assets
Inventory
Deposits on inventory
Prepaid expenses
Accounts payable and
accrued liabilities
Provisions
Contract liabilities
Total Changes in
Non-cash Operating
Working Capital
$
3.7 $
(7.4)
(166.0)
(0.1)
(2.7)
(80.0) $
(20.9)
(72.9)
(1.5)
(3.2)
(29.9)
(0.5)
2.4
115.9
(2.4)
—
83.7
13.5
(93.1)
1.4
0.5
(145.8)
1.9
2.4
Accounts payable and accrued liabilities decreased $29.9 million
in 2023 compared to an increase of $115.9 million in 2022. The
decrease in 2023 resulted primarily from lower trade payables
driven largely by timing of inventory payments. The increase in
2022 resulted primarily from higher trade payables on increased
inventory purchasing activity.
Contract assets increased $7.4 million compared to an increase
of $20.9 million in 2022. The increase in 2023 resulted primarily
from increased sales activity resulting in more work completed
but not yet billed on customer contracts. The increase in 2022
was also driven by increased sales activity resulting in more work
completed but not yet billed on customer contracts.
Investing Activities
For the year ended December 31, 2023, the Corporation used
$24.6 million of cash in investing activities compared with cash used
in investing activities of $14.3 million in 2022. Investing activities
in the year included $21.0 million (2022 – $9.1 million) invested
towards business acquisitions net of cash acquired, property, plant
and equipment additions of $9.0 million (2022 – $9.2 million), and
collection of lease receivables of $5.2 million (2022 – $3.9 million).
Financing Activities
For the year ended December 31, 2023, the Corporation generated
$117.5 million of cash from financing activities compared with
cash used in financing activities of $70.0 million in 2022.
Financing activities for the year ended December 31, 2023
included the payment of lease liabilities of $35.5 million (2022 –
$32.0 million), dividends paid to shareholders of $26.7 million
(2022 – $21.4 million), and a net bank credit facility borrowing of
$183.6 million (2022 – net repayment of $15.0 million).
Dividends
Dividends to shareholders for the 2023 and 2022 years were
declared and payable to shareholders of record as follows:
$
(200.6) $
(65.0) $
(135.6)
Record Date
Payment Date Per Share Amount
(1) Increase (decrease) in cash flow
Significant components of the changes in non-cash operating working
capital for the year ended December 31, 2023 compared to the year
ended December 31, 2022 are as follows:
Trade and other receivables decreased $3.7 million in 2023
compared with an increase of $80.0 million in 2022. The increase
in 2022 resulted primarily from higher sales activity in the year,
including the sale of large mining shovels late in the fourth quarter
of 2022 without comparable sales in the same period of the
prior year.
Inventory increased $166.0 million in 2023 compared with an
increase of $72.9 million in 2022. The increase in 2023 resulted
primarily from higher equipment inventory in the construction
and forestry, mining and material handling categories, and
increased overall parts inventory purchasing due to strong sales
activity in the year. The increase in 2022 resulted primarily from
an investment in certain key parts stock levels as a part of the
Corporation’s strategic initiatives.
March 15, 2023
June 15, 2023
September 15, 2023
December 15, 2023
Year Ended
December 31, 2023
April 4, 2023 $
July 5, 2023
October 3, 2023
January 3, 2024
0.33 $
0.33
0.33
0.33
7.1
7.1
7.1
7.2
$
1.32 $ 28.4
Record Date
Payment Date Per Share Amount
March 15, 2022
June 15, 2022
September 15, 2022
December 15, 2022
Year Ended
December 31, 2022
April 5, 2022 $
July 5, 2022
October 4, 2022
January 4, 2023
0.25 $
0.25
0.25
0.25
5.4
5.4
5.4
5.4
$
1.00 $ 21.4
On March 4, 2024, the Corporation announced a 6% increase in its
quarterly dividend. A dividend of $0.35 per share was declared for
the first quarter of 2024, payable on April 2, 2024, to shareholders of
record on March 15, 2024.
Wajax 2023 Annual Report 31
Management’s Discussion and Analysis
For the three months
ended December 31
Revenue
Gross profit
Selling and
administrative
expenses
Earnings before
finance costs and
income taxes
Finance costs
Earnings before
income taxes
Income tax expense
Net earnings
Basic earnings
per share(2)
Diluted earnings
per share(2)
Fourth Quarter Consolidated Results
Revenue by Geographic Region
2023
2022
% change
$
$
542.6 $
541.3
115.2 $
98.2
0.2%
17.3%
For the three months
ended December 31
Western Canada
Central Canada
Eastern Canada(1)
2023
2022 $ change % change
$ 235.6 $ 278.8 $
105.4
201.7
86.9
175.6
(43.3)
18.5
26.1
(15.5)%
21.3%
14.8%
Total revenue
$ 542.6 $ 541.3 $
1.3
0.2%
92.6
71.4
29.6%
(1) Includes Quebec and the Atlantic provinces.
$
22.6 $
7.8
14.8 $
3.7
11.1 $
26.7
4.2
22.6
5.9
16.6
(15.5)%
86.5%
(34.3)%
(37.3)%
(33.2)%
0.52 $
0.78
(33.6)%
$
$
$
$
Revenue Sources
For the three months
ended December 31
Equipment sales
Product support
Industrial parts
Engineered repair
services (ERS)
Equipment rental
2023
2022 $ change % change
$ 158.5 $ 202.2 $
132.8
136.0
103.6
11.7
118.3
137.9
72.6
10.2
(43.8)
14.5
(2.0)
(21.6)%
12.3%
(1.4)%
31.1
1.5
42.8%
14.4%
0.2%
Adjusted net earnings(1)(3) $
17.8 $
0.50 $
0.75
17.8
(33.5)%
0.2%
Total revenue
$ 542.6 $ 541.3 $
1.3
Adjusted basic earnings
per share(1)(2)(3)
Adjusted diluted earnings
per share(1)(2)(3)
$
$
Adjusted EBIT(1)
Adjusted EBITDA(1)
$
$
Key ratios:
Gross profit margin(1)
Selling and
administrative
expenses as a
percentage of revenue(1)
EBIT margin(1)
Adjusted EBIT margin(1)
Adjusted EBITDA margin(1)
Effective income tax rate
(0.4)%
(0.2)%
12.1%
11.5%
0.83 $
0.83
0.80 $
31.7 $
47.2 $
0.80
28.2
42.3
21.2%
18.1%
17.1%
4.2%
5.8%
8.7%
25.0%
13.2%
4.9%
5.2%
7.8%
26.2%
(1) These measures do not have a standardized meaning prescribed by GAAP. See the Non-
GAAP and Other Financial Measures section.
(2) Weighted average shares, net of shares held in trust outstanding for calculation of basic
and diluted earnings per share for the fourth quarter of 2023 was 21,570,005 (2022 –
21,453,250) and 22,319,062 (2022 – 22,228,401), respectively.
(3) Net earnings excluding the following:
a. after-tax facility closure, restructuring, and other related costs of $1.4 million (2022 –
nil), or basic and diluted loss per share of $0.07 and $0.06, respectively (2022 – nil) for
the fourth quarter of 2023.
b. after-tax non-cash losses on mark to market of derivative instruments of $5.0 million
(2022 – losses of $1.1 million), or basic and diluted loss per share of $0.23 (2022 –
loss per share of $0.05) for the fourth quarter of 2023.
c. after-tax losses on the change in fair value of contingent consideration of $0.2 million
(2022 – nil), or basic and diluted loss per share of $0.01 (2022 – nil) for the fourth
quarter of 2023.
Revenue in the fourth quarter of 2023 increased 0.2%, or
$1.3 million, to $542.6 million from $541.3 million in the fourth
quarter of 2022. In addition to regional revenue commentary provided
previously herein, the following factors contributed to the increase
in revenue:
ERS revenue has increased 42.8% due to higher sales in all
regions, particularly in western Canada.
Product support revenue has increased 12.3% due primarily to
higher mining revenue in western Canada, and higher construction
and forestry sales in eastern Canada.
Equipment sales have decreased 21.6% due primarily to lower
mining, and construction and forestry sales in western Canada,
offset partially by higher construction and forestry sales in central
and eastern Canada.
Backlog
The Corporation’s backlog at December 31, 2023 of $554.0 million
decreased $45.3 million, or 7.6%, compared to September 30, 2023
due primarily to lower construction and forestry orders.(1)
Gross profit
Gross profit increased $17.0 million, or 17.3%, in the fourth quarter
of 2023 compared to the fourth quarter of 2022, primarily due to
higher margins, as well as a higher proportion of ERS and product
support revenue.
Gross profit margin of 21.2% in the fourth quarter of 2023 increased
310 bps compared to the same period of 2022. The increase in
margin was driven primarily by higher margins across all revenue
types, and a higher proportion of ERS and product support sales as
compared to equipment sales.(1)
(1) “Backlog”, “Gross profit margin”, “Selling and administrative expenses as a percentage of revenue”, “Adjusted net earnings”, “Adjusted EBIT”, “Adjusted EBIT margin”, “Adjusted EBITDA”,
“Adjusted EBITDA margin”, “Adjusted basic earnings per share”, and “Adjusted diluted earnings per share” do not have standardized meanings prescribed by GAAP. See the Non-GAAP and Other
Financial Measures section.
32 Wajax 2023 Annual Report
Management’s Discussion and Analysis
Selling and administrative expenses
Selling and administrative expenses in the fourth quarter of 2023
increased $21.2 million, or 29.6%, compared to the fourth quarter
of 2022 due primarily to higher personnel costs as the volume of
ERS and product support business increased over the prior year, an
unrealized loss on interest rate swaps of $5.5 million in the quarter
compared to a loss of less than $0.1 million in the same quarter of
the prior year, and facility closure, restructuring, and other related
costs of $1.9 million in the quarter without a comparable cost in the
same quarter of the prior year.
Selling and administrative expenses as a percentage of revenue
increased to 17.1% in the fourth quarter of 2023 from 13.2% in the
fourth quarter of 2022. Excluding the $5.5 million loss on interest
rate swaps and the $1.9 million facility closure, restructuring,
and other related costs, selling and administrative expenses as a
percentage of revenue was 15.7% in the fourth quarter of 2023.(1)
The unrealized loss/gain on interest rate swaps and the facility
closure, restructuring, and other related costs have been excluded
in calculating the following metrics: adjusted net earnings, adjusted
EBIT, adjusted EBIT margin, adjusted EBITDA, adjusted EBITDA
margin, adjusted basic earnings per share, and adjusted diluted
earnings per share.(1)
Finance costs
Finance costs of $7.8 million in the fourth quarter of 2023 increased
$3.6 million compared to the same quarter last year due primarily to
higher interest rates and higher average borrowings under the bank
credit facility. See the Liquidity and Capital Resources section.
Income tax expense
The Corporation’s effective income tax rate of 25.0% for the fourth
quarter of 2023 was lower compared to the statutory rate of 26.0%
due mainly to the impact of changes in estimates related to prior
years. The Corporation’s effective income tax rate of 26.2% for the
fourth quarter of 2022 was higher compared to the statutory rate
of 26.0% due mainly to the impact of expenses not deductible for
tax purposes.
Net earnings
In the fourth quarter of 2023, the Corporation had net earnings of
$11.1 million, or $0.52 per share, compared to $16.6 million, or
$0.78 per share, in the fourth quarter of 2022. The $5.5 million
decrease in net earnings resulted from higher selling and
administrative expenses and finance costs, offset partially by higher
margins, and a higher proportion of ERS and product support sales.
Adjusted net earnings (See the Non-GAAP
and Other Financial Measures section)
Adjusted net earnings for the fourth quarter of 2023 excludes
facility closure, restructuring, and other related costs of $1.4 million
after tax, or $0.07 per share (2022 – nil), non-cash losses on
mark to market of derivative instruments of $5.0 million after
tax, or $0.23 per share (2022 – losses of $1.1 million after tax,
or $0.05 per share), and losses on the change in fair value of
contingent consideration of $0.2 million after tax, or $0.01 per share
(2022 – nil).
As such, adjusted net earnings for the fourth quarter of 2023 was
comparable to the fourth quarter of 2022, at $17.8 million, or
$0.83 per share.
Comprehensive income
Total comprehensive income of $8.4 million in the fourth quarter
of 2023 included net earnings of $11.1 million and an other
comprehensive loss of $2.7 million. The other comprehensive loss of
$2.7 million in the current period resulted primarily from $1.9 million
of unrealized losses on derivatives designated as cash flow hedges.
Fourth Quarter Cash Flows
Cash Flow
The following table highlights the major components of cash flow for
the quarters ended December 31, 2023 and December 31, 2022:
For the quarter ended December 31
2023
2022
$ Change
Net earnings
Items not affecting
cash flow
Changes in non-cash
operating working
capital
Finance costs paid
on debts
Finance costs paid
on lease liabilities
Income taxes paid
Rental equipment
additions
Rental equipment
disposals
Cash generated from
operating activities
Cash used in
investing activities
Cash used in
financing activities
Operating Activities
$
11.1 $
16.6 $
(5.5)
36.1
27.2
8.9
21.4
(16.4)
37.7
(4.6)
(1.2)
(2.4)
(6.8)
(2.0)
(2.4)
(7.9)
(3.4)
1.6
0.6
(3.4)
(0.4)
(4.4)
(4.5)
0.9
$
$
$
48.5 $
19.1 $
29.4
(0.5) $
(2.0) $
1.5
(53.3) $
(24.0) $
(29.3)
Cash flows generated from operating activities amounted to
$48.5 million in the fourth quarter of 2023, compared with cash
flows generated from operating activities of $19.1 million in the same
quarter of the previous year. The increase in cash flows generated
from operating activities of $29.4 million was mainly attributable
to a decrease in accounts receivable of $3.9 million in the fourth
quarter of 2023 compared to an increase of $33.0 million in the
same quarter of the previous year, and a decrease in inventory of
$28.1 million compared to an increase of $15.5 million in the same
quarter of the prior year. This increase in cash generated was offset
partially by a decrease in accounts payable and accrued liabilities of
$20.3 million compared to an increase of $38.1 million in the same
quarter of the prior year.
Rental equipment additions in the fourth quarter of 2023 of
$7.9 million (2022 – $3.4 million) related primarily to material
handling lift trucks.
Changes in significant components of non-cash operating
working capital for the quarters ended December 31, 2023 and
December 31, 2022 included the following:
Changes in Non-cash
Operating Working Capital(1)
2023
2022
$ Change
Trade and other
receivables
Contract assets
Inventory
Deposits on inventory
Prepaid expenses
Accounts payable and
accrued liabilities
Provisions
Contract liabilities
Total Changes in
Non-cash Operating
Working Capital
(1) Increase (decrease) in cash flow
$
3.9 $
3.4
28.1
(0.3)
7.3
(33.0) $
(3.5)
(15.5)
0.7
1.8
(20.3)
(0.5)
(0.2)
38.1
(1.7)
(3.2)
36.9
6.9
43.6
(1.0)
5.4
(58.4)
1.2
3.0
$
21.4 $
(16.4) $
37.7
Wajax 2023 Annual Report 33
Management’s Discussion and Analysis
Significant components of the changes in non-cash operating working
capital for the quarter ended December 31, 2023 compared to the
quarter ended December 31, 2022 are as follows:
Trade and other receivables decreased $3.9 million in the fourth
quarter of 2023 compared to an increase of $33.0 million in the
same period of 2022. The increase in the fourth quarter of 2022
resulted primarily from higher sales activity in the quarter, including
increased sales of large mining shovels late in the quarter as
compared to the previous quarter.
Inventory decreased $28.1 million in the fourth quarter of 2023
compared to an increase of $15.5 million in 2022. The decrease
in the fourth quarter of 2023 resulted primarily from lower
equipment inventory in the construction and forestry category
due to timing of inventory purchases. The increase in the fourth
quarter of 2022 was largely due to higher parts inventory driven
by an investment in certain key parts stock levels as a part of the
Corporation’s strategic initiatives.
Accounts payable and accrued liabilities decreased $20.3 million
in the fourth quarter of 2023 compared to an increase of
$38.1 million in 2022. The decrease in the fourth quarter of
2023 resulted primarily from lower trade payables driven largely by
timing of inventory payments. The increase in the fourth quarter of
2022 resulted primarily from higher trade payables on increased
inventory purchasing activity, and higher accrued liabilities including
higher incentive accruals.
Allowance for credit losses
The Corporation is exposed to credit risk with respect to its trade
and other receivables. However, this is partially mitigated by the
Corporation’s diversified customer base of over 32,000 customers
who operate in many business sectors across Canada, with no
one customer accounting for more than 10% of the Corporation’s
annual consolidated sales. In addition, the Corporation’s customer
base spans large public companies, small independent contractors,
original equipment manufacturers and various levels of government.
The Corporation follows a program of credit evaluations of customers
and limits the amount of credit extended when deemed necessary.
The Corporation maintains an allowance for possible credit losses,
and any such losses to date have been within management’s
expectations. The allowance for credit losses is determined by
estimating the lifetime expected credit losses, taking into account
the Corporation’s past experience of collecting payments as well as
observable changes in and forecasts of future economic conditions
that correlate with default on receivables. At the point when the
Corporation is satisfied that no recovery of the amount owing is
possible, the amount is deemed not recoverable and the financial
asset is written off. The $3.6 million allowance for credit losses at
December 31, 2023 increased $2.5 million from $1.2 million at
December 31, 2022. As economic conditions change, there is risk
that the Corporation could experience a greater number of defaults
compared to prior periods which would result in an increased charge
to earnings.
Investing Activities
Inventory obsolescence
The Corporation used $0.5 million of cash in investing activities
in the fourth quarter of 2023 compared to cash used in investing
activities of $2.0 million in the same quarter of 2022. Investing
activities in the quarter included property, plant and equipment
additions of $1.7 million (2022 – $3.1 million), and the collection of
lease receivables of $1.5 million (2022 – $1.1 million).
Financing Activities
The Corporation used $53.3 million of cash in financing activities
in the fourth quarter of 2023 compared to cash used in financing
activities of $24.0 million in the same quarter of 2022. Financing
activities in the quarter included a net bank credit facility repayment
of $37.0 million (2022 – net repayment of $10.0 million), the
payment of lease liabilities of $9.2 million (2022 – $8.3 million), and
dividends paid to shareholders of $7.1 million (2022 – $5.4 million).
Critical Accounting Estimates
The preparation of the consolidated financial statements in
conformity with IFRS requires management to make judgements,
estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets, liabilities, revenue
and expenses. Critical accounting estimates are those that require
management to make assumptions about matters that are highly
uncertain at the time the estimate or assumption is made. Critical
accounting estimates are also those that could potentially have a
material impact on the Corporation’s financial results were a different
estimate or assumption used.
Estimates and underlying assumptions are reviewed on an ongoing
basis. These estimates and assumptions are subject to change
at any time based on experience and new information. Revisions
to accounting estimates are recognized in the period in which the
estimates are revised and in any future periods affected.
The key assumptions concerning the future and other key sources
of estimation uncertainty that have a significant risk of resulting in a
material adjustment to the carrying amount of assets and liabilities
within the next fiscal year are as follows:
34 Wajax 2023 Annual Report
The value of the Corporation’s new and used equipment and high
value parts are evaluated by management throughout the year,
on a unit-by-unit basis considering projected customer demand,
future market conditions, and other considerations evaluated by
management. When required, provisions are recorded to ensure that
the book value of equipment and parts are valued at the lower of
cost or estimated net realizable value. The Corporation performs an
aging analysis to identify slow moving or obsolete lower value parts
inventory and estimates appropriate obsolescence provisions related
thereto. The Corporation takes advantage of supplier programs that
allow for the return of eligible parts for credit within specified time
periods. The inventory obsolescence impact on earnings for the three
months ended December 31, 2023 was a charge of $1.3 million
(2022 – recovery of $0.7 million) and for the twelve months ended
December 31, 2023 was a charge of $4.5 million (2022 – charge
of $0.8 million). As economic conditions change, there is risk that
the Corporation could have an increase in inventory obsolescence
compared to prior periods which would result in an increased charge
to earnings.
Acquisition accounting, goodwill and intangible assets
For acquisition accounting purposes, all identifiable assets and
liabilities acquired in a business acquisition are recognized at fair
value at the date of acquisition. Estimates and assumptions are
used to calculate the fair value of these assets and liabilities.
Changes to assumptions could significantly impact the fair values of
certain assets, such as intangible assets like customer relationships
and brands. The Corporation’s significant assumptions used in
determining the acquisition date fair value of intangible assets
include projected revenues and cash flows attributable to acquired
intangible assets, customer attrition rates, discount rates, royalty
rates and estimations of useful life.
The value in use of goodwill and intangible assets has been
estimated using the forecasts prepared by management for the
next five years. The key assumptions for the estimate are those
regarding revenue growth, EBITDA margin, tax rates, discount rates
and the level of working capital required to support the business.
These estimates are based on past experience and management’s
expectations of future changes in the market and forecasted
growth initiatives.
Management’s Discussion and Analysis Unanticipated changes in management’s assumptions or estimates
could materially affect the determination of the fair value of the
Corporation and therefore, could reduce or eliminate the excess
of fair value over the carrying value of the Corporation and could
potentially result in an impairment charge in the future.
The Corporation performs an annual impairment test based on
value in use of its goodwill and intangible assets with an indefinite
life based on its single cash generating unit group unless there is
an indication that the assets may be impaired, in which case the
impairment tests would occur earlier. There was no early indication of
impairment in the quarter ended December 31, 2023.
Contingent consideration, as part of acquisitions, is valued based
on estimated future performance of the acquired businesses.
The valuation is based on management’s best assessment of the
related inputs used in the valuation models, such as future cash
flows, discount rates, and volatility. Future performance results that
differ from management’s estimates could result in changes to the
liabilities, which are recorded as they arise in net earnings.
Lease term of contracts with renewal options
The lease term is defined as the non-cancellable term of the lease,
including any periods covered by a renewal option to extend the lease
if it is reasonably certain that the renewal option will be exercised,
or any periods covered by an option to terminate the lease, if it is
reasonably certain that the termination option will not be exercised.
Judgement is used when evaluating whether the Corporation is
reasonably certain that the lease renewal option will be exercised,
including examining any factors that may provide an economic
advantage for renewal.
Changes in Accounting Policies
During the year, the Corporation did not adopt any new accounting
standards or amendments that had an impact on the Corporation’s
consolidated financial statements.
Accounting standards and amendments issued but not yet adopted
Amendments to IAS 1, Presentation of Financial Statements
(effective January 1, 2024) clarify the classification of liabilities
as current or non-current. For the purposes of non-current
classification, the amendments remove the requirement for a
right to defer settlement of a liability for at least twelve months
to be unconditional. Instead, such a right must have substance
and exist at the end of the reporting period in order to qualify for
non-current classification. Management does not expect that this
amendment will have an impact on the Corporation’s consolidated
financial statements.
Risk Management and Uncertainties
As with most businesses, the Corporation is subject to a number
of marketplace and industry related risks and uncertainties
which could have a material impact on operating results and the
Corporation’s ability to pay cash dividends to shareholders. The
Corporation attempts to minimize many of these risks through
diversification of core businesses and through the geographic
diversity of its operations. In addition, the Corporation has adopted
an enterprise risk management framework which is prepared
by senior management and overseen by the Board of Directors
and committees of the Board of Directors. The enterprise risk
management framework sets out principles and tools for identifying,
evaluating, prioritizing and managing risk effectively and consistently
across the Corporation.
The following are a number of risks that deserve particular comment:
Manufacturer relationships and product access
Wajax seeks to distribute leading product lines in each of its regional
markets and its success is dependent upon continuing relations with
the manufacturers it represents. Wajax endeavours to align itself in
long-term relationships with manufacturers that are committed to
achieving a competitive advantage and long-term market leadership
in their targeted end markets. In equipment and certain industrial
categories, manufacturer relationships are governed through
effectively exclusive distribution agreements. Distribution agreements
are typically for multi-year terms and are cancellable by Wajax or
the manufacturer based on a notification period specified in the
agreement. Although Wajax enjoys good relationships with its major
manufacturers and seeks to develop additional strong long-term
partnerships, a loss of a major product line without a comparable
replacement would have a significant adverse effect on Wajax’s
results of operations or cash flow.
There is a continuing consolidation trend among industrial equipment
and component manufacturers. Consolidation may impact the
products distributed by Wajax, in either a favourable or unfavourable
manner. Consolidation of manufacturers may have a negative impact
on the results of operations or cash flow if product lines Wajax
distributes become unavailable as a result of the consolidation.
Suppliers generally have the ability to unilaterally change distribution
terms and conditions, product lines or limit supply of product in times
of intense market demand. Supplier changes in the area of product
pricing and availability can have a negative or positive effect on
Wajax’s revenue and margins. A change in one of a supplier’s product
lines can result in conflicts with another supplier’s product lines that
may have a negative impact on the results of operations or cash flow
if one of the suppliers cancels its distribution with Wajax due to the
conflict. In addition, from time to time suppliers make changes to
payment terms for distributors. This may affect Wajax’s interest-free
payment period which may have a materially negative or positive
impact on working capital balances such as cash, inventory, deposits
on inventory, trade and other payables and long-term debt.
Economic conditions/Business cyclicality
Wajax’s customer base consists of businesses operating in the
natural resources, construction, transportation, manufacturing,
industrial processing and utilities industries. These industries can
be capital intensive and cyclical in nature and, as a result, customer
demand for Wajax’s products and services may be affected by
economic conditions at both a global or local level. Changes in
interest rates, consumer and business confidence, corporate profits,
credit conditions, foreign exchange, commodity prices and the
level of government infrastructure spending may influence Wajax’s
customers’ operating, maintenance and capital spending, and
therefore Wajax’s sales and results of operations. Although Wajax
has attempted to address its exposure to business and industry
cyclicality by diversifying its operations by geography, product offering
and customer base, there can be no assurance that Wajax’s results
of operations or cash flows will not be adversely affected by changes
in economic conditions.
Commodity prices
Many of Wajax’s customers are directly and indirectly affected by
fluctuations in commodity prices in the forestry, metals and minerals
and petroleum and natural gas industries and, as a result, Wajax is
also indirectly affected by fluctuations in these prices. In particular,
each of Wajax’s products and services categories are exposed to
fluctuations in the price of oil and natural gas. A downward change
in commodity prices, and particularly in the price of oil and natural
gas, could therefore adversely affect Wajax’s results of operations or
cash flows.
Wajax 2023 Annual Report 35
Management’s Discussion and Analysis Growth initiatives, integration of acquisitions and project execution
The Corporation’s strategic plan establishes priorities for organic
growth, acquisitions and operating infrastructure, including
maintaining a target leverage ratio range of 1.5 - 2.0 times unless
a leverage ratio outside this range is required either to support key
growth initiatives or fluctuations in working capital levels during
changes in economic cycles. The Corporation may also maintain
a leverage ratio above the stated range as a result of investment
in significant acquisitions and may fund those acquisitions using
its bank credit facilities and other debt instruments in accordance
with the Corporation’s expectations of total future cash flows,
financing costs and other factors. See the Strategic Direction and
Outlook section and the Non-GAAP and Other Financial Measures
sections. While end market conditions remain challenging, the
Corporation believes it has a robust strategy and is confident in its
growth prospects. The Corporation’s confidence is strengthened by
the enhanced earnings potential of its consolidated “One Wajax”
business model and by relationships with its customers and vendors.
Wajax’s ability to develop its core capabilities and successfully grow
its business organically will be dependent on achieving the individual
growth initiatives. Wajax’s ability to successfully grow its business
through acquisitions will be dependent on a number of factors
including: identification of accretive new business or acquisition
opportunities; negotiation of purchase agreements on satisfactory
terms and prices; prior approval of acquisitions by third-parties,
including any necessary regulatory approvals; securing attractive
financing arrangements; and integration of newly acquired operations
into the existing business. All of these activities associated with
growing the business, realizing enhanced earnings potential from
the One Wajax structure and investments made in systems may
be more difficult to implement or may take longer to execute than
management anticipates. Further, any significant expansion of the
business may increase the operating complexity of Wajax, and divert
management away from regular business activities. Any failure
of Wajax to successfully manage its growth strategy, including
acquisitions, could have a material adverse impact on Wajax’s
business, results of operations or financial condition.
Key personnel
The success of Wajax is largely dependent on the abilities and
experience of its senior management team and other key personnel.
Its future performance will also depend on its ability to attract,
develop and retain highly qualified employees in all areas of its
business. Competition for skilled management, sales and technical
personnel is intense, particularly in certain markets where Wajax
competes. Wajax continuously reviews and makes adjustments to
its hiring, training and compensation practices in an effort to attract
and retain a highly competent workforce. There can be no assurance,
however, that Wajax will be successful in its efforts and a loss of
key employees, or failure to attract and retain new talent as needed,
may have an adverse impact on Wajax’s current operations or
future prospects.
Leverage, credit availability and restrictive covenants
At the date of this MD&A, Wajax has a $500.0 million bank credit
facility which matures October 1, 2027. The bank credit facility
contains restrictive covenants which place restrictions on, among
other things, the ability of Wajax to encumber or dispose of its
assets, the amount of finance costs incurred and dividends declared
relative to earnings and certain reporting obligations. A failure to
comply with the obligations of the facility could result in an event of
default which, if not cured or waived, could require an accelerated
repayment of the facility. There can be no assurance that Wajax’s
assets would be sufficient to repay the facility in full.
36 Wajax 2023 Annual Report
Wajax’s short-term normal course working capital requirements
can swing widely quarter-to-quarter due to timing of large inventory
purchases and/or sales and changes in market activity. In general,
as Wajax experiences growth, there is a need for additional working
capital. Conversely, as Wajax experiences economic slowdowns, the
need for working capital is reduced, reflecting the lower activity levels.
While management believes its bank credit facility will be adequate to
meet the Corporation’s normal course working capital requirements,
maintenance capital requirements and certain strategic investments,
there can be no assurance that additional credit will become
available if required, or that an appropriate amount of credit with
comparable terms and conditions will be available when the bank
credit facility matures.
Wajax may be required to access the equity or debt markets or
reduce dividends in order to fund significant acquisitions and growth
related working capital and capital expenditures. The amount of debt
service obligations under the bank credit facility will be dependent on
the level of borrowings and fluctuations in interest rates to the extent
the rate is unhedged. As a result, fluctuations in debt servicing costs
may have a detrimental effect on future earnings or cash flow.
Wajax also has credit lines available with other financial institutions
for purposes of financing inventory. These facilities are not committed
lines and their future availability cannot be assured, which may
have a negative impact on cash available for dividends and future
growth opportunities.
Quality of products distributed
The ability of Wajax to maintain and expand its customer base is
dependent upon the ability of the manufacturers represented by
Wajax to sustain or improve the quality of their products. The quality
and reputation of such products are not within Wajax’s control, and
there can be no assurance that manufacturers will be successful
in meeting these goals. The failure of these manufacturers to
maintain a market presence could adversely affect Wajax’s results of
operations or cash flow.
Inventory obsolescence
Wajax maintains substantial amounts of inventory in its business
operations. While Wajax believes it has appropriate inventory
management systems in place, variations in market demand for the
products it sells can result in certain items of inventory becoming
obsolete. This could result in a requirement for Wajax to take a
material write down of its inventory balance resulting in Wajax not
being able to realize expected revenue and cash flows from its
inventory, which would negatively affect results from operations or
cash flow.
Government regulation
Wajax’s business is subject to evolving laws and government
regulations, particularly in the areas of taxation, the environment, and
health and safety. Changes to such laws and regulations may impose
additional costs on Wajax and may adversely affect its business
in other ways, including requiring additional compliance measures
by Wajax.
Insurance
Wajax maintains a program of insurance coverage that is comparable
to those maintained by similar businesses, including property,
general liability, directors and officers liability, and cyber security
insurance. Although the limits and self-insured retentions of such
insurance policies have been established through risk analysis
and the recommendations of professional advisors, there can be
no assurance that such insurance will remain available to Wajax at
commercially reasonable rates or that the amount of such coverage
will be adequate to cover all liability incurred by Wajax. If Wajax is
held liable for amounts exceeding the limits of its insurance coverage
or for claims outside the scope of that coverage, its business, results
of operations or financial condition could be adversely affected.
Management’s Discussion and Analysis Information systems and technology
Information systems are an integral part of Wajax’s business
processes, including marketing of equipment and support services,
inventory and logistics, and finance. Some of these systems are
integrated with certain suppliers’ core processes and systems. Any
disruptions to these systems or new systems due to, for example,
the upgrade or conversion thereof, or the failure of these systems
or new systems to operate as expected could, depending on the
magnitude of the problem, adversely affect Wajax’s operating
results by limiting the ability to effectively monitor and control
Wajax’s operations.
Credit risk
Wajax extends credit to its customers, generally on an unsecured
basis. Although Wajax is not substantially dependent on any one
customer and it has a system of credit management in place,
the loss of a large receivable would have an adverse effect on
Wajax’s profitability.
A declining U.S. dollar relative to the Canadian dollar can have a
negative effect on Wajax’s revenue and cash flows as a result of
certain products being imported from the U.S. In some cases market
conditions require Wajax to lower its selling prices as the U.S. dollar
declines. As well, many of Wajax’s customers export products to the
U.S., and a strengthening Canadian dollar can negatively impact their
overall competitiveness and demand for their products, which in turn
may reduce product purchases from Wajax.
A strengthening U.S. dollar relative to the Canadian dollar can have a
positive effect on Wajax’s revenue, as Wajax will periodically institute
price increases on inventory imported from the U.S. to offset the
negative impact of foreign exchange rate increases to ensure margins
are not eroded. However, a sudden strengthening U.S. dollar relative
to the Canadian dollar can have a negative impact mainly on parts
margins in the short-term prior to price increases taking effect.
Wajax maintains a hedging policy whereby significant transactional
currency risks are identified and hedged.
Labour relations
Interest rate risk
Wajax had 3,200+ employees as at December 31, 2023. At the
outset of 2023, Wajax was party to 13 collective agreements covering
approximately 318 employees. Two agreements with expiration dates
in 2022 were ratified in early 2023 covering 29 employees. During
2023, six collective agreements expired covering approximately
140 employees. Three of the six agreements were ratified during
2023 covering 83 employees. Subsequent to year-end, the remaining
three agreements with expiration dates in 2023 were ratified in
early 2024 covering 57 employees. Three agreements covering 113
employees expire in 2024; one agreement covering 103 employees
has already commenced bargaining. Four agreements covering
64 employees expire in 2025. As at December 31, 2023, Wajax
was party to 13 collective agreements covering a total of 317
employees. Wajax recognizes its employees’ rights to join a union
and is committed to integrity in its labour relations. Wajax strives
to establish a constructive and cooperative dialogue that promotes
collaborative union/management relations, a safe and respectful
work culture, productive work environments and the equitable
treatment of employees by consistently adhering to collective
agreements, labour relations legislation and workplace policies. The
Corporation believes its labour relations to be satisfactory and does
not anticipate it will be unable to renew the collective agreements.
If Wajax is unable to renew or negotiate collective agreements from
time to time, it could result in work stoppages and other labour
disturbances. The failure to renew collective agreements upon
satisfactory terms could have a material adverse impact on Wajax’s
business, results of operations or financial condition.
Foreign exchange exposure
Wajax’s operating results are reported in Canadian dollars. While the
majority of Wajax’s sales are in Canadian dollars, significant portions
of its purchases are in U.S. dollars. Changes in the U.S. dollar
exchange rate can have a negative or positive impact on Wajax’s
revenue, margins and working capital balances. Wajax mitigates
certain exchange rate risks by entering into foreign exchange forward
contracts to fix the cost of certain inbound inventory and to hedge
certain foreign-currency denominated sales to customers. In addition,
Wajax will periodically institute price increases to offset the negative
impact of foreign exchange rate increases on imported goods. The
inability of Wajax to mitigate exchange rate risks or increase prices
to offset foreign exchange rate increases, including sudden and
volatile changes in the U.S. dollar exchange rate, may have a material
adverse effect on the results of operations or financial condition
of Wajax.
Wajax has exposure to interest rate fluctuations on its interest-
bearing financial liabilities, in particular from its long-term debt.
Changes in interest rates can have a negative or positive impact on
Wajax’s finance costs and cash flows. Wajax monitors the proportion
of variable rate debt to its total debt portfolio and may enter into
interest rate swap contracts to mitigate all or a portion of the
interest rate risk on its variable rate debt. The inability of Wajax to
mitigate interest rate risks to offset interest rate increases may have
a material adverse effect on the results of operations or financial
condition of Wajax.
Equity price risk
Certain share-based compensation plans of the Corporation, and the
resulting liabilities, are exposed to fluctuations in the Corporation’s
share price. Changes in the Corporation’s share price can have a
positive or negative impact on Wajax’s net earnings and cash flows.
Wajax monitors the proportion of MTIP units that are cash-settled
and may enter into total return swap contracts to mitigate a portion
of the equity price risk on these MTIP units. The inability of Wajax
to mitigate equity price risks to offset fluctuations in its share price
may have a material adverse effect on the results of operations or
financial condition of Wajax.
Competition
The categories in which Wajax participates are highly competitive and
include competitors who are national, regional and local. Competitors
can be grouped into four classifications:
Capital Equipment Dealers and Distributors – these competitors
typically represent a major alternative manufacturer and provide
sales, product support, rental, financing and other services in
categories such as construction, forestry, mining and power
generation. Examples include the regional dealer and distributor
networks of Caterpillar, Komatsu, John Deere and Cummins.
Competition is based on product range and quality, aftermarket
support and price.
Industrial Parts Distributors – these competitors typically represent
a broad range of industrial parts manufacturers and offer sales and,
in many cases, product support services, including design, assembly
and repair. Competitive product range varies from focused on specific
applications (e.g., hydraulics) to very broad (similar to Wajax).
Competitors can be local, regional and national. Competition is based
on brand access, product quality, customer service levels, price and
ancillary services.
Wajax 2023 Annual Report 37
Management’s Discussion and Analysis Engineered Repair Services Providers – these competitors typically
have a local or regional presence. They offer services including
design, assembly and repair, are generally focused on specific
products, brands and/or applications (e.g., hydraulics), whereas
Wajax typically offers a broader scope of capabilities. Competition
is based on customer service levels, quality of the work performed
and price.
Aftermarket Service Providers – these competitors provide
aftermarket services in areas such as on-highway transportation.
Competitors vary, from the dealer and distributor networks of
manufacturers such as Freightliner and Western Star, to local service
providers. Competition is based on customer service levels and price.
There can be no assurance that Wajax will be able to continue to
effectively compete. Increased competitive pressures, the growing
influence of online distribution or the inability of Wajax to maintain the
factors which have enhanced its competitive position could adversely
affect its results of operations or cash flow.
Litigation and product liability claims
In the ordinary course of its business, Wajax may be made a party
to various legal actions, the outcome of which cannot be predicted
with certainty. One category of potential legal actions is product
liability claims. Wajax carries product liability insurance, and
management believes that this insurance is adequate to protect
against potential product liability claims. Not all risks, however, are
covered by insurance, and no assurance can be given that insurance
will be consistently available, or will be consistently available on an
economically feasible basis, or that the amounts of insurance will at
all times be sufficient to cover each and every loss or claim that may
occur involving Wajax’s assets or operations.
Guaranteed residual value, recourse and buy-back contracts
In some circumstances Wajax makes certain guarantees to finance
providers on behalf of its customers. These guarantees can take
the form of assuring the resale value of equipment, guaranteeing
a portion of customer lease payments, or agreeing to buy back
the equipment at a specified price. These contracts are subject to
certain conditions being met by the customer, such as maintaining
the equipment in good working condition. Historically, Wajax has not
incurred substantial losses on these types of contracts, however,
there can be no assurance that losses will not be incurred in
the future.
Future warranty claims
Wajax provides manufacturers’ and/or dealer warranties for most of
the product it sells. In some cases, the product warranty claim risk
is shared jointly with the manufacturer. In addition, Wajax provides
limited warranties for workmanship on services provided. Accordingly,
Wajax has some liability for warranty claims. There is a risk that
a possible product quality erosion or a lack of a skilled workforce
could increase warranty claims in the future, or may be greater than
management anticipates. If Wajax’s liability in respect of such claims
is greater than anticipated, it may have a material adverse impact on
Wajax’s business, results of operations or financial condition.
Maintenance and repair contracts
Wajax occasionally enters into long-term maintenance and repair
contracts with its customers, whereby Wajax is obligated to maintain
certain fleets of equipment at various negotiated performance levels.
The length of these contracts varies significantly, often ranging
up to five or more years. The contracts are generally fixed price,
although many contracts have additional provisions for inflationary
adjustments. Due to the long-term nature of these contracts, there
is a risk that significant cost overruns may be incurred. If Wajax
has miscalculated the extent of maintenance work required, or
if actual parts and service costs increase beyond the contracted
inflationary adjustments, the contract profitability will be adversely
affected. In order to mitigate this risk, Wajax closely monitors the
contracts for early warning signs of cost overruns. In addition, the
manufacturer may, in certain circumstances, share in the cost
overruns if profitability falls below a certain threshold. Any failure by
Wajax to effectively price and manage these contracts could have a
material adverse impact on Wajax’s business, results of operations or
financial condition.
Environmental factors
From time to time, Wajax experiences environmental incidents,
emissions or spills in the course of its normal business activities.
Wajax has established environmental compliance and monitoring
programs, including an internal compliance audit function, which
management believes are appropriate for its operations. In addition,
Wajax retains qualified environmental engineering consultants to
conduct the following activities: environmental site assessments prior
to the acquisition or occupation by Wajax; ongoing monitoring of soil
and groundwater contamination; and remediation of contaminated
sites. There can be no assurance that any future incidents, emissions
or spills will not result in a material adverse effect on Wajax’s results
of operations or cash flows. Management is not aware of any material
environmental concerns for which a provision has not been recorded.
Cyber security
Wajax’s business relies on information technology platforms,
including third-party service providers, to process, transmit and
store electronic information – including that related to customers,
vendors and employees. A breach in the security of the Corporation’s
information technology systems, or those of its third-party service
providers, could expose the business to a risk of loss, misuse of
confidential information and/or business interruption.
The Corporation has security controls in place, including security
tools, and reviews security internally and with the assistance of
expert third-parties. In addition, the Corporation has policies in place
regarding security over confidential customer, vendor and employee
information, performs employee security training, and has recovery
plans in place in the event of a cyber-attack.
Despite such security controls, there is no assurance that cyber
security threats can be fully detected, prevented or mitigated. Should
such threats materialize and depending on the magnitude of the
problem, they could have a material impact on Wajax’s business,
results of operations or financial condition.
Disclosure Controls and Procedures and
Internal Control over Financial Reporting
Wajax’s management, under the supervision of its Chief Executive
Officer (“CEO”) and Chief Financial Officer (“CFO”), is responsible
for establishing and maintaining disclosure controls and procedures
(“DC&P”) and internal control over financial reporting (“ICFR”).
As at December 31, 2023, Wajax’s management, under the
supervision of its CEO and CFO, had designed DC&P to provide
reasonable assurance that information required to be disclosed
by Wajax in annual filings, interim filings or other reports filed or
submitted under applicable securities legislation is recorded,
processed, summarized and reported within the time periods
specified in such securities legislation. DC&P are designed to ensure
that information required to be disclosed by Wajax in annual filings,
interim filings or other reports filed or submitted under applicable
securities legislation is accumulated and communicated to Wajax’s
management, including its CEO and CFO, as appropriate, to allow
timely decisions regarding required disclosure.
38 Wajax 2023 Annual Report
Management’s Discussion and Analysis As at December 31, 2023, Wajax’s management, under the
supervision of its CEO and CFO, had designed ICFR to provide
reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in
accordance with IFRS. In completing the design, management used
the criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission in its 2013 version of Internal
Control – Integrated Framework. With regard to general controls over
information technology, management also used the set of practices
of Control Objectives for Information and related Technology created
by the IT Governance Institute.
During the year, Wajax’s management, under the supervision of its
CEO and CFO, evaluated the effectiveness and operation of its DC&P
and ICFR. This evaluation included a risk evaluation, documentation
of key processes and tests of effectiveness conducted on a
sample basis throughout the year. Due to the inherent limitations
in all control systems, an evaluation of the DC&P and ICFR can
only provide reasonable assurance over the effectiveness of the
controls. As a result, DC&P and ICFR are not expected to prevent
and detect all misstatements due to error or fraud. The CEO and
CFO have concluded that Wajax’s DC&P and ICFR were effective as at
December 31, 2023.
The Corporation has excluded from its evaluation the ICFR of
Polyphase, acquired effective July 4, 2023, and Beta, acquired
effective September 1, 2023, as discussed in Note 5 of the
consolidated financial statements and accompanying notes for the
year ended December 31, 2023. The total combined revenue subject
to Polyphase’s and Beta’s ICFR represented 0.8% of the Corporation’s
consolidated total revenue for the year ended December 31, 2023.
The total combined assets subject to Polyphase’s and Beta’s ICFR
represented 1.0% of the Corporation’s consolidated total assets as
at December 31, 2023.
Non-GAAP and Other Financial Measures
The MD&A contains certain non-GAAP and other financial measures
that do not have a standardized meaning prescribed by GAAP.
Therefore, these financial measures may not be comparable to
similar measures presented by other issuers. Investors are cautioned
that these measures should not be construed as an alternative to
net earnings or to cash flow from operating, investing, and financing
activities determined in accordance with GAAP as indicators of
the Corporation’s performance. The Corporation’s management
believes that:
(i)
(ii)
these measures are commonly reported and widely used by
investors and management;
the non-GAAP measures are commonly used as an indicator of a
company’s cash operating performance, profitability and ability to
raise and service debt;
(iii) “Adjusted net earnings”, “Adjusted basic earnings per share”
and “Adjusted diluted earnings per share” provide indications
of the results by the Corporation’s principal business activities
prior to recognizing non-recurring costs (recoveries) and non-
cash losses (gains) on mark to market of derivative instruments.
These adjustments to net earnings and basic and diluted
earnings per share allow the Corporation’s management to
consistently compare periods by removing infrequent charges
incurred outside of the Corporation’s principal business activities
and the impact of unrealized losses (gains) resulting from
fluctuations in interest rates and the Corporation’s share price;
(iv)
“Adjusted EBITDA” provides an indication of the results by the
Corporation’s principal business activities prior to recognizing
non-recurring costs (recoveries) and non-cash losses (gains) on
mark to market of derivative instruments. These adjustments
to net earnings allow the Corporation’s management to
consistently compare periods by removing infrequent charges
incurred outside of the Corporation’s principal business
activities, the impact of unrealized losses (gains) resulting
from fluctuations in interest rates and the Corporation’s share
price, the impact of fluctuations in finance costs related to the
Corporation’s capital structure, the impact of tax rates, and the
impact of depreciation and amortization of long-term assets; and
(v)
“Pro-forma adjusted EBITDA” provides the same utility as
Adjusted EBITDA described above, however pursuant to the
terms of the bank credit facility, is adjusted for the EBITDA of
business acquisitions made during the period as if they were
made at the beginning of the trailing 12-month period, and
for the deduction of payments of lease liabilities. Pro-forma
adjusted EBITDA is used in calculating the Leverage ratio and
Senior secured leverage ratio.
Non-GAAP financial measures are identified and defined below:
Funded net debt
Debt
Total capital
EBITDA
Adjusted net
earnings (loss)
Adjusted basic
earnings (loss) per
share and adjusted
diluted earnings
(loss) per share
Adjusted EBIT
Funded net debt includes bank indebtedness,
debentures and total long-term debt, net of
cash. Funded net debt is relevant in calculating
the Corporation’s funded net debt to total
capital, which is a non-GAAP ratio commonly
used as an indicator of a company’s ability to
raise and service debt.
Debt is funded net debt plus letters of credit.
Debt is relevant in calculating the Corporation’s
leverage ratio, which is a non-GAAP ratio
commonly used as an indicator of a company’s
ability to raise and service debt.
Total capital is shareholders’ equity plus
funded net debt.
Net earnings (loss) before finance
costs, income tax expense, depreciation
and amortization.
Net earnings (loss) before any facility closure,
restructuring, and other related costs, gains/
losses recorded on sale of properties, non-
cash gains/losses on mark to market of
derivative instruments, and change in fair value
of contingent consideration.
Basic and diluted earnings (loss) per share
before any facility closure, restructuring, and
other related costs, gains/losses recorded
on sale of properties, non-cash gains/
losses on mark to market of derivative
instruments, and change in fair value of
contingent consideration.
EBIT before any facility closure, restructuring,
and other related costs, gains/losses
recorded on sale of properties, non-cash
gains/losses on mark to market of derivative
instruments, and change in fair value of
contingent consideration.
Wajax 2023 Annual Report 39
Management’s Discussion and Analysis Adjusted EBITDA
Pro-forma adjusted
EBITDA
Working capital
Other working
capital amounts
EBITDA before any facility closure,
restructuring, and other related costs, gains/
losses recorded on sale of properties, non-
cash gains/losses on mark to market of
derivative instruments, and change in fair value
of contingent consideration.
Defined as adjusted EBITDA adjusted for
the EBITDA of business acquisitions made
during the period as if they were made at
the beginning of the trailing 12-month period
pursuant to the terms of the bank credit
facility and the deduction of payments of lease
liabilities. Pro-forma adjusted EBITDA is used
in calculating the Leverage ratio and Senior
secured leverage ratio.
Defined as current assets less current
liabilities, as presented in the consolidated
statements of financial position.
Defined as working capital less trade
and other receivables and inventory plus
accounts payable and accrued liabilities, as
presented in the consolidated statements of
financial position.
Non-GAAP ratios are identified and defined below:
Adjusted EBIT
margin
EBITDA margin
Adjusted EBITDA
margin
Leverage ratio
Senior secured
leverage ratio
Defined as adjusted EBIT (defined above)
divided by revenue, as presented in the
consolidated statements of earnings.
Defined as EBITDA (defined above) divided
by revenue, as presented in the consolidated
statements of earnings.
Defined as adjusted EBITDA (defined above)
divided by revenue, as presented in the
consolidated statements of earnings.
The leverage ratio is defined as debt (defined
above) at the end of a particular quarter
divided by trailing 12-month pro-forma adjusted
EBITDA (defined above). The Corporation’s
objective is to maintain this ratio between 1.5
times and 2.0 times.
The senior secured leverage ratio is defined
as debt (defined above) excluding debentures
at the end of a particular quarter divided by
trailing 12-month pro-forma adjusted EBITDA
(defined above).
Funded net debt to
total capital
Defined as funded net debt (defined above)
divided by total capital (defined above).
Working capital
efficiency
Defined as trailing four-quarter average working
capital (defined above) as a percentage of the
trailing 12-month revenue.
Supplementary financial measures are identified and defined below:
EBIT margin
Backlog
Defined as EBIT divided by revenue, as
presented in the consolidated statements
of earnings.
Backlog is a management measure which
includes the total sales value of customer
purchase commitments for future delivery or
commissioning of equipment, parts and related
services, including ERS projects. There is no
directly comparable GAAP financial measure
for Backlog.
Gross profit margin Defined as gross profit divided by revenue,
as presented in the consolidated statements
of earnings.
Defined as selling and administrative expenses
divided by revenue, as presented in the
consolidated statements of earnings.
Selling and
administrative
expenses as a
percentage of
revenue
Reconciliation of the Corporation’s net earnings to adjusted net
earnings, adjusted basic earnings per share and adjusted diluted
earnings per share is as follows:
Three months ended
December 31
2023
2022
Year ended
December 31
2023
2022
$
11.1 $
16.6 $
81.0 $
72.4
Net earnings
Facility closure,
restructuring, and
other related
costs, after tax
Gain recorded on the
sale of properties,
after tax
Non-cash losses
(gains) on mark
to market of
derivative
instruments,
after tax
Change in fair value
of contingent
consideration,
after tax
1.4
—
1.4
—
—
(0.1)
—
—
5.0
1.1
0.9
(2.6)
0.2
—
0.2
—
Adjusted net
earnings
Adjusted basic
earnings
per share(1)
Adjusted diluted
earnings
per share(1)
$
17.8 $
17.8 $
83.5 $
69.8
$
0.83 $
0.83 $
3.88 $
3.26
$
0.80 $
0.80 $
3.75 $
3.15
(1) At December 31, 2023, the number of weighted average basic and diluted shares
outstanding were 21,570,005 and 22,319,062, respectively for the three months ended,
and 21,509,250 and 22,271,628, respectively for the year ended.
At December 31, 2022, the number of weighted average basic and diluted shares
outstanding were 21,453,250 and 22,228,401, respectively for the three months ended,
and 21,423,140 and 22,196,918, respectively for the year ended.
40 Wajax 2023 Annual Report
Management’s Discussion and Analysis
Reconciliation of the Corporation’s EBIT to EBITDA, Adjusted EBIT,
Adjusted EBITDA and Pro-forma adjusted EBITDA is as follows:
Calculation of the Corporation’s funded net debt, debt, leverage ratio
and senior secured leverage ratio is as follows:
Three months ended
December 31
2023
2022
Year ended
December 31
2023
2022
$
22.6 $
26.7 $ 135.5 $ 113.9
15.5
14.1
58.6
55.5
38.1 $
40.8 $ 194.1 $ 169.3
Bank indebtedness
Debentures
Long-term debt
Funded net debt
Letters of credit
22.6 $
26.7 $ 135.5 $ 113.9
Debt
EBIT
Depreciation and
amortization
EBITDA
EBIT
Facility closure,
restructuring,
and other
$
$
related costs(1)
Gain recorded on the
sale of properties
Non-cash losses
(gains) on mark
to market of
derivative
instruments(2)
Change in fair value
of contingent
consideration(3)
1.9
—
—
—
1.9
(0.1)
—
—
6.8
1.5
1.3
(3.5)
0.3
—
0.3
—
$
31.7 $
28.2 $ 138.9 $ 110.4
15.5
14.1
58.6
55.5
$
47.2 $
42.3 $ 197.4 $ 165.9
Adjusted EBIT
Depreciation and
amortization
Adjusted EBITDA
Payment of lease
liabilities(4)
Polyphase acquisition
pro-forma EBITDA(5)
Beta acquisition
pro-forma EBITDA(5)
Pro-forma adjusted
EBITDA
(35.5)
(32.0)
3.2
1.4
—
—
December 31
2023
$
1.4 $
2022
5.2
55.8
83.6
144.6
6.2
56.3
267.8
325.5 $
4.8
$
$
$
330.3 $
150.8
166.7 $
133.9
1.98
1.64
1.13
0.71
Pro-forma adjusted EBITDA(1)
Leverage ratio(2)
Senior secured leverage ratio(3)
(1) For the year ended December 31, 2023 and December 31, 2022.
(2) Calculation uses debt divided by the trailing four-quarter Pro-forma adjusted EBITDA. This
leverage ratio is calculated for purposes of monitoring the Corporation’s objective target
leverage ratio of between 1.5 times and 2.0 times, and is different from the leverage ratio
calculated under the Corporation’s bank credit facility agreement.
(3) Calculation uses debt excluding debentures divided by the trailing four-quarter Pro-forma
adjusted EBITDA. While the calculation contains some differences from the leverage ratio
calculated under the Corporation’s bank credit facility agreement, the resulting leverage
ratio under the bank credit facility agreement is not significantly different. See the Liquidity
and Capital Resources section.
Calculation of total capital and funded net debt to total capital is
as follows:
Shareholders’ equity
Funded net debt
Total capital
December 31
2023
496.2 $
325.5
2022
449.8
144.6
$
$
821.7 $
594.4
Funded net debt to total capital
39.6%
24.3%
$ 166.7 $ 133.9
Calculation of the Corporation’s working capital and other working
capital amounts is as follows:
(1) For 2023, facility closure, restructuring, and other related costs consists of costs accrued
for a branch closure during the fourth quarter, including workforce reduction and remaining
facility costs.
(2) Non-cash losses (gains) on mark to market of derivative instruments that are not effectively
designated as hedging instruments under IFRS.
(3) The change in fair value of contingent consideration relates to changes in the estimated
fair value of future performance-based earnout payments relating to business acquisitions.
(4) Effective with the reporting period beginning on January 1, 2019 and the adoption of IFRS
16, the Corporation amended the definition of Funded net debt to exclude lease liabilities
not considered part of debt. As a result, the corresponding lease costs must also be
deducted from EBITDA for the purpose of calculating the leverage ratio.
(5) Pro-forma EBITDA for business acquisitions made during the period as if they were made
at the beginning of the trailing 12-month period pursuant to the terms of the bank credit
facility, for the purpose of calculating the leverage ratio.
Total current assets
Total current liabilities
December 31
2023
$ 1,043.6 $
483.4
2022
860.1
514.1
Working capital
$
560.2 $
346.0
Trade and other receivables
Inventory
Accounts payable and accrued liabilities
(309.1)
(630.9)
407.1
(307.1)
(462.2)
423.8
Other working capital amounts
$
27.3 $
0.7
Wajax 2023 Annual Report 41
Management’s Discussion and Analysis
Cautionary Statement Regarding
Forward-Looking Information
This MD&A and Annual Report contain certain forward-looking
statements and forward-looking information, as defined in applicable
securities laws (collectively, “forward-looking statements”). These
forward-looking statements relate to future events or the
Corporation’s future performance. All statements other than
statements of historical fact are forward-looking statements. Often,
but not always, forward looking statements can be identified by the
use of words such as “plans”, “anticipates”, “intends”, “predicts”,
“expects”, “is expected”, “scheduled”, “believes”, “estimates”,
“projects” or “forecasts”, or variations of, or the negatives of, such
words and phrases, or state that certain actions, events or results
“may”, “could”, “would”, “should”, “might” or “will” be taken, occur
or be achieved. Forward-looking statements involve known and
unknown risks, uncertainties and other factors beyond the
Corporation’s ability to predict or control which may cause actual
results, performance and achievements to differ materially from
those anticipated or implied in such forward-looking statements. To
the extent any forward-looking information in this MD&A and Annual
Report constitutes future-oriented financial information or financial
outlook within the meaning of applicable securities law, such
information is being provided to demonstrate the potential of the
Corporation and readers are cautioned that this information may not
be appropriate for any other purpose. There can be no assurance that
any forward-looking statement will materialize. Accordingly, readers
should not place undue reliance on forward-looking statements. The
forward-looking statements in this MD&A and Annual Report are
made as of the date of this MD&A and Annual Report, reflect
management’s current beliefs and are based on information currently
available to management. Although management believes that the
expectations represented in such forward-looking statements are
reasonable, there is no assurance that such expectations will prove
to be correct. Specifically, this MD&A and Annual Report include
forward looking statements regarding, among other things: our focus
on six strategic priorities for 2024: our belief that our strong, evolving
and increasingly comprehensive partnership with Hitachi will yield
benefits for years to come; our focus on adding multiple industrial
parts and ERS acquisitions per year; our view that the forecasted
demand for the inventory we stock is favourable; our ESG plans and
goals for 2024 and beyond, including our GHG reduction targets,
plans to achieve additional wellness certifications and diversity goals;
continuing to build a “people-first” company, growing Wajax’s existing
business with a focus on parts, service and margin improvement,
unlocking the potential of Wajax’s enhanced direct relationship with
Hitachi, acquiring industrial parts and ERS businesses, improving
cost structure and processes, and continuing Wajax’s ERP system
rollout and additional technology improvements; the continued
development of our environmental, social and governance programs,
and the goals and objectives set out in our Sustainability Roadmap;
our belief that, moving into 2024, fundamentals remain solid across
many of the key markets we serve, and in particular, mining, energy
and construction; our belief that our strong fourth quarter backlog
supports management’s confidence in the near-term future; our
expectation of growth in our heavy equipment business over the
long-term, and continued anticipation of further demand in our less
cyclical industrial parts and ERS businesses; our expectation that
challenges associated with higher interest rates, wage and price
inflation, and a tight labour market will persist in 2024, and our
continued monitoring of market dynamics and customer sentiment for
signs of possible weakness; our belief that our strong 2023 financial
results and solid balance sheet, coupled with our recently completed
$100.0 million increase in credit limit under our senior secured credit
facility, give us the flexibility to continue investing in future organic
growth and acquisitions; the board’s and managements’ collective
belief in our strategic vision; our objective of managing our working
capital and normal-course capital investment programs within a
leverage range of 1.5 – 2.0 times, and to fund such programs
through operating cash flow and our bank credit facilities as required;
instances whereby we may be willing to maintain a leverage ratio
outside our target range due to changes in economic cycles, and
above this range as a result of investments in acquisitions, and that
we may fund those acquisitions using our bank credit facilities and
other debt instruments in accordance with our expectations of total
future cash flows financing costs and other factors; our expectation
that a change in interest rates (in particular, related to unhedged
variable rate debt), would not have a material impact on our results of
operations or financial condition over the long term; our expectation
that a change in foreign currency value, relative to the Canadian
dollar, on transactions with customers that include unhedged
currency exposures would not have a material impact on our results
of operations or financial condition over the longer term; our
expectation that the impact of a change in our share price on
cash-settled MTIP units would not have a material impact on our
results of operations or financial condition over the longer term; our
belief there is not a significant risk of non-performance by the
counterparties to our foreign exchange contacts, and our continued
monitoring of the credit risk of these counterparties; and our belief
that we maintain sufficient liquidity to meet short-term normal course
working capital and maintenance capital requirements and fund
certain strategic investments, as well as the potential need for us to
access the equity or debt capital markets to fund significant
acquisitions. These statements are based on a number of
assumptions which may prove to be incorrect, including, but not
limited to, assumptions regarding: the absence of significant negative
changes to general business and economic conditions; limited
negative fluctuations in the supply and demand for, and the level and
volatility of prices for, oil, natural gas and other commodities; the
stability of financial market conditions, including interest rates; the
ability of Hitachi and Wajax to develop and execute successful sales,
marketing and other plans related to the expanded direct distribution
relationship which took effect on March 1, 2022; our continued ability
to execute our strategic priorities, including our ability to execute on
our organic growth priorities, find, complete and effectively integrate
industrial parts and ERS acquisitions, and successfully implement
new information technology platforms, systems and software, such
as our ERP system; the future financial performance of the
Corporation; limited fluctuations in our costs; the level of market
competition; our continued ability to attract and retain skilled staff;
our continued ability to procure quality products and inventory; and
our ongoing maintenance of strong relationships with suppliers,
employees and customers. The foregoing list of assumptions is not
exhaustive. Factors that may cause actual results to vary materially
include, but are not limited to: a continued or prolonged deterioration
in general business and economic conditions; negative fluctuations in
the supply and demand for, and the level of prices for, oil, natural gas
and other commodities; a continued or prolonged decrease in the
price of oil or natural gas; the inability of Hitachi and Wajax to develop
and execute successful sales, marketing and other plans related to
the expanded direct distribution relationship which took effect on
March 1, 2022; a decrease in levels of customer confidence and
42 Wajax 2023 Annual Report
Management’s Discussion and Analysis spending; supply chain disruptions and shortages; fluctuations in
financial market conditions, including interest rates; the level of
demand for, and prices of, the products and services we offer;
decreased market acceptance of the products we offer; the
termination of distribution or original equipment manufacturer
agreements; unanticipated operational difficulties (including failure of
plant, equipment or processes to operate in accordance with
specifications or expectations, cost escalation, our inability to reduce
costs in response to slow-downs in market activity, unavailability of
quality products or inventory, supply disruptions, job action and
unanticipated events related to health, safety and environmental
matters); our inability to find suitable acquisition targets, or to
complete acquisitions on terms reasonable in the circumstances; our
inability to attract and retain skilled staff and our inability to maintain
strong relationships with our suppliers, employees and customers.
The foregoing list of factors is not exhaustive.
Further information concerning the risks and uncertainties associated
with these forward-looking statements and the Corporation’s business
may be found in this MD&A under the heading “Risk Management
and Uncertainties”. The forward-looking statements contained in
this MD&A and Annual Report are expressly qualified in their entirety
by this cautionary statement. The Corporation does not undertake
any obligation to publicly update such forward-looking statements to
reflect new information, subsequent events or otherwise unless so
required by applicable securities laws.
Readers are cautioned that the risks described in this MD&A are
not the only risks that could impact the Corporation. Risks and
uncertainties not currently known to the Corporation, or currently
deemed to be immaterial, may have a material effect on the
Corporation’s business, financial condition or results of operations.
Management’s Responsibility
for Financial Reporting
The consolidated financial statements of Wajax Corporation are
the responsibility of management and have been prepared in
accordance with International Financial Reporting Standards. Where
appropriate, the information reflects management’s judgement and
estimates based on the available information. Management is also
responsible for all other information in the Annual Report and for
ensuring that this information is consistent with the consolidated
financial statements.
Wajax maintains a system of internal control designed to provide
financial information and the safeguarding of its assets. Wajax also
maintains an internal audit function, which reviews the system of
internal control and its application.
The Audit Committee of the Board, consisting solely of outside
directors, meets regularly during the year with management,
internal auditors and the external auditors, to review their
respective activities and the discharge of their responsibilities.
Both the external and internal auditors have free and independent
access to the Audit Committee to discuss the scope of their
audits, the adequacy of the system of internal control and the
adequacy of financial reporting. The Audit Committee reports its
findings to the Board, which reviews and approves the consolidated
financial statements.
Wajax’s external auditors, KPMG LLP, are responsible for auditing the
consolidated financial statements and expressing an opinion thereon.
Ignacy (Iggy) Domagalski
President and
Chief Executive Officer
Stuart Auld
Chief Financial Officer
Mississauga, Canada, March 4, 2024
Wajax 2023 Annual Report 43
Independent
Auditors’ Report
To the Shareholders of Wajax Corporation
Opinion
considerations evaluated by management. When required, provisions
are recorded to adjust the value of equipment to the lower of cost
and estimated net realizable value.
We have audited the consolidated financial statements of Wajax
Corporation (the “Entity”), which comprise:
Why the matter is a key audit matter
the consolidated statements of financial position as at
December 31, 2023 and December 31, 2022
the consolidated statements of earnings for the years then ended
We identified the evaluation of inventory obsolescence as a key audit
matter. We identified this as a key audit matter because significant
auditor judgment was required in evaluating the Entity’s determination
of net realizable value.
the consolidated statements of comprehensive income for the
How the matter was addressed in the audit
years then ended
the consolidated statements of changes in shareholders’ equity for
the years then ended
the consolidated statements of cash flows for the years then ended
and notes to the consolidated financial statements, including a
summary of material accounting policy information
(Hereinafter referred to as the “financial statements”).
In our opinion, the accompanying financial statements present
fairly, in all material respects, the consolidated financial position
of the Entity as at December 31, 2023 and December 31, 2022,
and its consolidated financial performance and its consolidated
cash flows for the years then ended in accordance with IFRS
Accounting Standards.
Basis for Opinion
We conducted our audit in accordance with Canadian generally
accepted auditing standards. Our responsibilities under those
standards are further described in the “Auditors’ Responsibilities for
the Audit of the Financial Statements” section of our auditors’ report.
We are independent of the Entity in accordance with the ethical
requirements that are relevant to our audit of the financial
statements in Canada and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements for the year ended December 31, 2023.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
We have determined the matters described below to be the key audit
matters to be communicated in our auditors’ report.
Evaluation of inventory obsolescence
Description of the matter
We draw attention to Note 2 and Note 8 to the financial statements.
As at December 31, 2023, the Entity had an equipment inventory
balance of $329 million and a total inventory obsolescence provision
of $28 million, a portion of which related to equipment inventory.
The value of the Entity’s new and used equipment is evaluated by
the Entity throughout the year, on a unit-by-unit basis considering
projected customer demand, future market conditions, and other
44 Wajax 2023 Annual Report
The primary procedures we performed to address this key audit
matter included the following:
For a selection of equipment inventory, we analyzed the Entity’s
estimate of net realizable value by taking into consideration the
length of time the inventory had not been sold, market conditions
and other factors,
For a selection of equipment inventory, we assessed the estimated
net realizable value of the units by comparing the carrying
amounts to the most recent sales invoice of the same or similar
equipment, and
We evaluated the Entity’s estimate of the inventory obsolescence
provision by comparing the prior year provision to actual results in
the current year, both on an aggregate basis and for a selection of
equipment inventory.
Other Information
Management is responsible for the other information. Other
information comprises:
the information included in Management’s Discussion and Analysis
filed with the relevant Canadian Securities Commissions.
the information, other than the financial statements and the
auditors’ report thereon, included in a document likely to be
entitled “Wajax 2023 Annual Report”.
Our opinion on the financial statements does not cover the other
information and we do not and will not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information identified above and,
in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained
in the audit and remain alert for indications that the other information
appears to be materially misstated.
We obtained the information included in Management’s Discussion
and Analysis filed with the relevant Canadian Securities Commissions
as at the date of this auditors’ report. If, based on the work we have
performed on this other information, we conclude that there is a
material misstatement of this other information, we are required to
report that fact in the auditors’ report.
We have nothing to report in this regard.
The information, other than the financial statements and the auditors’
report thereon, included in a document likely to be entitled “Wajax
2023 Annual Report” is expected to be made available to us after
the date of this auditors’ report. If, based on the work we will perform
on this other information, we conclude that there is a material
misstatement of this other information, we are required to report that
fact to those charged with governance.
in our auditors’ report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained
up to the date of our auditors’ report. However, future events
or conditions may cause the Entity to cease to continue as a
going concern.
Evaluate the overall presentation, structure and content of the
financial statements, including the disclosures, and whether the
financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
Communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit
and significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
Provide those charged with governance with a statement that
we have complied with relevant ethical requirements regarding
independence, and communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
Obtain sufficient appropriate audit evidence regarding the financial
information of the entities or business activities within the group
Entity to express an opinion on the financial statements. We are
responsible for the direction, supervision and performance of the
group audit. We remain solely responsible for our audit opinion.
Determine, from the matters communicated with those charged
with governance, those matters that were of most significance
in the audit of the financial statements of the current period
and are therefore the key audit matters. We describe these
matters in our auditors’ report unless law or regulation precludes
public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be
communicated in our auditors’ report because the adverse
consequences of doing so would reasonably be expected to
outweigh the public interest benefits of such communication.
Chartered Professional Accountants, Licensed Public Accountants
The engagement partner on the audit resulting in this auditors’ report
is W. G. Andrew Smith. Vaughan, Canada
March 4, 2024
Responsibilities of Management and Those Charged with
Governance for the Financial Statements
Management is responsible for the preparation and fair presentation
of the financial statements in accordance with IFRS Accounting
Standards, and for such internal control as management determines
is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible
for assessing the Entity’s ability to continue as a going concern,
disclosing as applicable, matters related to going concern and using
the going concern basis of accounting unless management either
intends to liquidate the Entity or to cease operations, or has no
realistic alternative but to do so.
Those charged with governance are responsible for overseeing the
Entity’s financial reporting process.
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that
includes our opinion.
Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with Canadian
generally accepted auditing standards will always detect a material
misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the
basis of the financial statements.
As part of an audit in accordance with Canadian generally accepted
auditing standards, we exercise professional judgment and maintain
professional skepticism throughout the audit.
We also:
Identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a basis
for our opinion.
The risk of not detecting a material misstatement resulting
from fraud is higher than for one resulting from error, as
fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit
in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the Entity’s internal control.
Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures
made by management.
Conclude on the appropriateness of management’s use of the
going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related
to events or conditions that may cast significant doubt on the
Entity’s ability to continue as a going concern. If we conclude that
a material uncertainty exists, we are required to draw attention
Wajax 2023 Annual Report 45
Consolidated Statements
of Financial Position
As at (in thousands of Canadian dollars)
Assets
Current
Trade and other receivables
Contract assets
Inventory
Deposits on inventory
Lease receivables – current
Prepaid expenses
Derivative financial assets – current
Total current assets
Non-Current
Rental equipment
Property, plant and equipment
Right-of-use assets
Lease receivables
Goodwill and intangible assets
Derivative financial assets
Total non-current assets
Total assets
Liabilities And Shareholders’ Equity
Current
Bank indebtedness
Accounts payable and accrued liabilities
Provisions – current
Contract liabilities
Dividends payable
Income taxes payable
Lease liabilities – current
Derivative financial liabilities – current
Total current liabilities
Non-Current
Provisions
Deferred tax liabilities
Employee benefits
Derivative financial liabilities
Lease liabilities
Debentures
Long-term debt
Other liabilities
Total non-current liabilities
Total liabilities
Shareholders’ Equity
Share capital
Contributed surplus
Retained earnings
Accumulated other comprehensive income
Total shareholders’ equity
Total liabilities and shareholders’ equity
Subsequent events (Note 29)
See accompanying notes to consolidated financial statements.
46 Wajax 2023 Annual Report
46 Wajax 2023 Annual Report
Note
2023
2022
December 31
6 $ 309,079 $ 307,055
57,890
7
462,164
8
8,537
4,170
11,105
9,202
69,520
630,931
8,643
5,896
13,912
5,632
14
18
1,043,613
860,123
9
9
10
14
11
18
42,490
44,829
135,832
10,601
190,276
5,676
39,400
44,104
122,720
7,729
170,714
5,092
429,704
389,759
$ 1,473,317 $ 1,249,882
$
1,397 $
12
13
7
19
14
18
13
24
15
18
14
16
17
19
407,090
2,727
21,891
7,151
4,631
34,407
4,081
5,230
423,834
3,178
19,511
5,368
23,152
31,347
2,458
483,375
514,078
76
10,328
7,024
1,521
140,967
56,340
267,755
9,694
76
8,539
6,655
960
127,099
55,762
83,602
3,341
493,705
286,034
977,080
800,112
210,004
7,563
278,100
570
207,555
8,963
228,145
5,107
496,237
449,770
$ 1,473,317 $ 1,249,882
Consolidated Statements
of Earnings
For the years ended December 31 (in thousands of Canadian dollars, except per share data)
Revenue
Cost of sales
Gross profit
Selling and administrative expenses
Earnings before finance costs and income taxes
Finance costs
Earnings before income taxes
Income tax expense
Net earnings
Basic earnings per share
Diluted earnings per share
Consolidated Statements
of Comprehensive Income
For the years ended December 31 (in thousands of Canadian dollars)
Net earnings
Items that will not be reclassified to earnings
Actuarial (losses) gains on pension plans,
net of tax recovery of $115 (2022 – expense of $434)
Items that may be subsequently reclassified to earnings
Unrealized (losses) gains on derivatives designated as cash flow hedges,
net of tax recovery of $821 (2022 – expense of $3,127)
Realized gains on derivatives designated as cash flow hedges, reclassified to
net earnings during period, net of tax expense of $798 (2022 – expense of $760)
Other comprehensive (loss) income, net of tax
Total comprehensive income
See accompanying notes to consolidated financial statements.
Note
2023
2022
21 $ 2,154,678 $ 1,962,822
1,572,509
1,704,044
450,634
315,123
135,511
25,867
109,644
28,654
390,313
276,456
113,857
17,345
96,512
24,104
23
24
$
80,990 $
72,408
19 $
19
3.77 $
3.64
3.38
3.26
Note
2023
2022
$
80,990 $
72,408
15
(321)
1,216
(2,301)
8,626
(2,236)
(2,136)
(4,858)
7,706
$
76,132 $
80,114
Wajax 2023 Annual Report 47
Wajax 2023 Annual Report 47
Consolidated Statements
of Changes in Shareholders’ Equity
Accumulated
other
comprehensive
income (loss)
For the year ended December 31, 2023 (in thousands of Canadian dollars)
Note
Share Contributed
surplus
capital
Retained
earnings
Cash flow
hedges
Total
December 31, 2022
Net earnings
Other comprehensive loss
Total comprehensive income
Shares issued to settle share-based compensation plans
Shares released from trust to settle
share-based compensation plans
Purchased for future settlement of certain
share-based compensation plans
Share-based compensation expense
Dividends declared
$ 207,555 $
8,963 $ 228,145 $
5,107 $ 449,770
—
—
—
2,574
—
—
80,990
(321)
—
(2,574)
80,669
—
—
(4,537)
(4,537)
—
19
19, 20
680
(1,635)
(1,074)
19
20
19
(805)
—
—
—
2,809
—
(1,195)
—
(28,445)
—
—
—
—
80,990
(4,858)
76,132
—
(2,029)
(2,000)
2,809
(28,445)
December 31, 2023
$ 210,004 $
7,563 $ 278,100 $
570 $ 496,237
For the year ended December 31, 2022 (in thousands of Canadian dollars)
Note
Share Contributed
surplus
capital
Retained
earnings
Cash flow
hedges
Total
Accumulated
other
comprehensive
(loss) income
$ 206,705 $
8,417 $ 176,174 $
(1,383) $ 389,913
December 31, 2021
Net earnings
Other comprehensive income
Total comprehensive income
Shares issued to settle share-based compensation plans
Shares released from trust to settle
share-based compensation plans
Purchased for future settlement of certain
share-based compensation plans
Share-based compensation expense
Dividends declared
19
19, 20
19
20
19
—
—
—
958
216
—
—
—
(958)
72,408
1,216
73,624
—
(976)
249
(324)
—
—
—
2,480
—
(476)
—
(21,426)
—
6,490
6,490
—
—
—
—
—
72,408
7,706
80,114
—
(511)
(800)
2,480
(21,426)
December 31, 2022
$ 207,555 $
8,963 $ 228,145 $
5,107 $ 449,770
See accompanying notes to consolidated financial statements.
48 Wajax 2023 Annual Report
48 Wajax 2023 Annual Report
Consolidated Statements
of Cash Flows
For the years ended December 31 (in thousands of Canadian dollars)
Note
2023
2022
Operating Activities
Net earnings
Items not affecting cash flow:
Depreciation and amortization:
Rental equipment
Property, plant and equipment
Right-of-use assets
Intangible assets
(Gain) loss on disposal of property, plant & equipment
(Gain) loss on disposal of right-of-use assets
Share-based compensation expense
Change in fair value of contingent consideration
Non-cash income from finance leases
Employee benefits expense, net of employer contributions
Gain on derivative financial instruments
Finance costs
Income tax expense
Changes in non-cash operating working capital
Rental equipment additions
Rental equipment disposals
Other non-current liabilities
Cash received on settlement of total return swaps
Finance costs paid on debts
Finance costs paid on lease liabilities
Interest collected on lease receivables
Income taxes paid
Cash (used in) generated from operating activities
Investing Activities
Property, plant and equipment additions
Proceeds on disposal of property, plant and equipment
Intangible assets net additions
Collection of lease receivables
Business acquisitions, net of cash acquired
Payment of contingent consideration
Cash used in investing activities
Financing Activities
Net increase (decrease) in bank debt
Purchase of shares held in trust
Transaction costs on debts
Payment of lease liabilities
Payment of tax withholding for share-based compensation
Dividends paid
Cash generated from (used in) financing activities
Change in cash
(Bank indebtedness) cash – beginning of period
Bank indebtedness – end of period
See accompanying notes to consolidated financial statements.
$
80,990 $
72,408
9
9
10
11
20
13
18
23
24
25
9
9
18
14, 23
23
9
11
5
13
17
19
17
14
14,304
8,271
29,548
6,448
(198)
(29)
9,448
330
(600)
(67)
(1,639)
25,867
28,654
14,689
7,449
27,408
5,937
37
113
5,435
—
(430)
(113)
(3,221)
17,345
24,104
201,327
171,161
(200,565)
(20,936)
3,542
(179)
1,396
(16,155)
(8,871)
630
(49,194)
(64,975)
(10,898)
2,550
(2,304)
874
(9,165)
(7,852)
352
(10,611)
(89,005)
69,132
(8,970)
1,104
(876)
5,242
(21,000)
(127)
(9,224)
913
(792)
3,886
(9,070)
(59)
(24,627)
(14,346)
183,606
(2,000)
—
(35,450)
(2,029)
(26,662)
(15,045)
(800)
(278)
(31,960)
(511)
(21,410)
117,465
(70,004)
3,833
(15,218)
(5,230)
9,988
$
(1,397) $
(5,230)
Wajax 2023 Annual Report 49
Wajax 2023 Annual Report 49
Notes to Consolidated
Financial Statements
December 31, 2023 (amounts in thousands of Canadian dollars, except share and per share data)
1. Company Profile
Wajax Corporation (the “Corporation”) is incorporated in Canada. The
address of the Corporation’s registered head office is 2250 Argentia
Road, Mississauga, Ontario, Canada. The Corporation operates an
integrated distribution system, providing sales, parts and services
to a broad range of customers in diversified sectors of the Canadian
economy, including: construction, forestry, mining, industrial and
commercial, oil sands, transportation, metal processing, government
and utilities, and oil and gas.
2. Basis of Preparation
Statement of compliance
These consolidated financial statements have been prepared
in accordance with IFRS Accounting Standards as issued by the
International Accounting Standards Board (“IASB”).
These consolidated financial statements were authorized for issue by
the Board of Directors on March 4, 2024.
Basis of measurement
These consolidated financial statements have been prepared under
the historical cost basis except for derivative financial instruments,
contingent consideration and share-based payment arrangements
that have been measured at fair value. The defined benefit liability is
recognized as the net total of the fair value of the plan assets and
the present value of the defined benefit obligation.
Functional and presentation currency
These consolidated financial statements are presented in Canadian
dollars, which is the Corporation’s functional currency. All financial
information presented in Canadian dollars has been rounded to the
nearest thousand, unless otherwise stated and except share and per
share data.
Judgements and estimation uncertainty
The preparation of these consolidated financial statements in
conformity with IFRS requires management to make judgements,
estimates and assumptions that affect the application of
accounting policies and the reported amounts and disclosures
made in these consolidated financial statements. Actual results
could differ from those judgements, estimates and assumptions.
The Corporation bases its estimates on historical experience and
various other assumptions that are believed to be reasonable in
the circumstances.
The key assumptions concerning the future and other key sources
of estimation uncertainty that have a significant risk of resulting in a
material adjustment to the carrying amount of assets and liabilities
within the next fiscal year are as follows:
Allowance for credit losses
The Corporation is exposed to credit risk with respect to its trade
and other receivables. However, this is partially mitigated by the
Corporation’s diversified customer base who operate in many
business sectors across Canada. In addition, the Corporation’s
customer base spans large public companies, small independent
contractors, original equipment manufacturers and various levels of
government. The Corporation follows a program of credit evaluations
of customers and limits the amount of credit extended when
50 Wajax 2023 Annual Report
50 Wajax 2023 Annual Report
deemed necessary. The Corporation maintains an allowance for
possible credit losses, and any such losses to date have been within
management’s expectations. The allowance for credit losses is
determined by estimating the lifetime expected credit losses, taking
into account the Corporation’s past experience of collecting payments
as well as observable changes in and forecasts of future economic
conditions that correlate with default on receivables. At the point
when the Corporation is satisfied that no recovery of the amount
owing is possible, the amount is considered not recoverable and the
financial asset is written off.
Inventory obsolescence
The value of the Corporation’s new and used equipment and high
value parts is evaluated by management throughout the year,
on a unit-by-unit basis considering projected customer demand,
future market conditions, and other considerations evaluated by
management. When required, provisions are recorded to ensure that
equipment and parts are valued at the lower of cost and estimated
net realizable value. The Corporation performs an aging analysis
to identify slow moving or obsolete lower value parts inventory and
estimates appropriate obsolescence provisions related thereto. The
Corporation takes advantage of supplier programs that allow for the
return of eligible parts for credit within specified time periods.
Acquisition accounting, goodwill and intangible assets
For acquisition accounting purposes, all identifiable assets and
liabilities acquired in a business acquisition are recognized at fair
value at the date of acquisition. Estimates and assumptions are
used to calculate the fair value of these assets and liabilities.
Changes to assumptions could significantly impact the fair values of
certain assets, such as intangible assets like customer relationships
and brands. The Corporation’s significant assumptions used in
determining the acquisition date fair value of intangible assets
include projected revenues and cash flows attributable to acquired
intangible assets, customer attrition rates, discount rates, royalty
rates, and estimations of useful life.
The value in use of goodwill and intangible assets has been
estimated using the forecasts prepared by management for the next
five years. The key assumptions for the estimate are those regarding
revenue growth, earnings before interest, taxes, depreciation and
amortization (“EBITDA”) margin, tax rates, discount rates and the
level of working capital required to support the business. These
estimates are based on past experience and management’s
expectations of future changes in the market and forecasted
growth initiatives.
Contingent consideration, as part of acquisitions, is valued based
on estimated future performance of the acquired businesses.
The valuation is based on management’s best assessment of the
related inputs used in the valuation models, such as future cash
flows, discount rates, and volatility. Future performance results that
differ from management’s estimates could result in changes to the
liabilities, which are recorded as they arise in net earnings.
Lease term of contracts with renewal options
The lease term is defined as the non-cancellable term of the lease,
including any periods covered by a renewal option to extend the lease
if it is reasonably certain that the renewal option will be exercised,
or any periods covered by an option to terminate the lease, if it is
reasonably certain that the termination option will not be exercised.
Judgement is used when evaluating whether the Corporation is
reasonably certain that the lease renewal option will be exercised,
including examining any factors that may provide an economic
advantage for renewal.
3. Material Accounting Policies
Principles of consolidation
These consolidated financial statements include the accounts
of Wajax Corporation and its subsidiary entities, which are all
wholly-owned. Intercompany balances and transactions are eliminated
on consolidation.
Revenue recognition
Revenue from contracts with customers is recognized for each
performance obligation as control is transferred to the customer.
The following is a description of principal activities from which the
Corporation generates its revenue, and the associated timing of
revenue recognition.
Revenue type
Nature and timing of satisfaction
of performance obligations
Equipment sales
Retail sales
Sales of power
and energy
systems
Industrial parts
Product support
Service
Parts
Engineered
repair services
("ERS")
Retail sales include the sale of new and used
equipment. The Corporation recognizes revenue
when control of the equipment passes to the
customer based on shipment terms.
Sales of complex power and energy systems
involve design, installation, and assembly. As
a result of control transferring over time as the
asset is constructed, revenue is recognized on a
percentage of completion basis proportionate to
the work that has been completed and is based
on associated costs incurred.
The Corporation recognizes revenue when control
of the parts passes to the customer based on
shipment terms.
Revenue from sales of parts and labour when
servicing equipment is recognized based on the
extent of progress towards completion of the
performance obligation. The customer controls
the asset as it is being serviced, so revenue
is recognized on a basis proportionate to the
service work that has been performed based
on associated costs incurred. The Corporation’s
service arrangements are generally short-term in
nature with predictable pricing and costs.
The Corporation recognizes revenue when control
of the parts passes to the customer based on
shipment terms or upon customer pickup.
Revenue from engineered repair services is
recognized based on the extent of progress
towards completion of the performance
obligation. Revenue is recognized on a basis
proportionate to the service work that has been
performed based on associated costs incurred,
because it best reflects the transfer of control of
the work-in-progress to the customer as the asset
is being constructed, repaired, or modified.
Equipment rental Revenue from equipment rentals where the
Corporation acts as lessor is presented as
equipment rental revenue, and is recognized on a
straight-line basis over the term of the lease.
The transaction price is generally the amount stated in the contract.
Certain contracts are subject to discounts which are estimated and
included in the transaction price. Provisions are made for expected
returns and warranty costs based on historical data.
Business combinations
Business combinations are accounted for using the acquisition
method at the acquisition date, which is the date that control
is transferred to the Corporation. In assessing control, the
Corporation takes into consideration potential voting rights that are
currently exercisable.
Goodwill is measured as the excess of the sum of the fair value
of the consideration transferred, the amount of any non-controlling
interests in the acquiree, and the fair value of any previously held
equity interest in the acquiree over the net of the acquisition date
fair value of the identifiable assets acquired and the liabilities
assumed. If the excess is negative, a bargain purchase gain is
recognized immediately in earnings. Transaction costs, other than
those associated with the issuance of debt or equity, are recognized
in earnings as incurred.
Any contingent consideration payable is measured at fair value at
the acquisition date. If the contingent consideration is classified as
equity, then it is not re-measured, and settlement is accounted for
in equity. Otherwise, subsequent changes in the fair value of the
contingent consideration are recognized in earnings.
When the initial accounting for a business combination has not been
finalized by the end of the reporting period in which the combination
occurs, the Corporation reports provisional amounts for the items
for which the accounting has not been finalized. These provisional
amounts are adjusted during the measurement period, which
does not exceed one year from the acquisition date, to reflect new
information obtained about facts and circumstances that existed at
the acquisition date.
Trade and other receivables
Trade accounts receivable are amounts due from customers for
merchandise sold or services performed in the ordinary course of
business. Other accounts receivable are generally from suppliers for
warranty and rebates. If collection is expected in one year or less
(or in the normal operating cycle of the business, if longer), they are
classified as current assets. If not, they are presented as non-current
assets. Trade accounts receivable are recognized initially at amounts
due, net of impairment for estimated expected credit losses. The
expense relating to expected credit losses is included within selling
and administrative expenses in the consolidated statements
of earnings.
Contract assets and contract liabilities
Contract assets relate to the Corporation’s rights to consideration
for work completed but not billed at the reporting date, primarily
on product support and ERS revenue. The contract assets are
transferred to receivables when billed upon completion of significant
milestones. Contract liabilities relate to the advance billing or
advance consideration received from customers, primarily on
equipment sales, industrial parts sales, and ERS revenue, for which
revenue is recognized when control transfers to the customer.
Inventory
Inventory is valued at the lower of cost and net realizable value. Cost
is determined using the weighted average method except where the
items are not ordinarily interchangeable, in which case the specific
identification method is used. Cost of equipment and parts includes
purchase cost, conversion cost, if applicable, and the cost incurred in
bringing inventory to its present location and condition. Cost of work-
in-process and cost of conversion includes cost of direct labour, direct
materials and a portion of direct and indirect overheads, allocated
based on normal capacity. Net realizable value is the estimated
selling price in the ordinary course of business, less the estimated
costs to sell.
Wajax 2023 Annual Report 51
Wajax 2023 Annual Report 51
Rental equipment
Rental equipment is recorded at cost less accumulated depreciation.
Cost includes all expenditures directly attributable to the acquisition
of the asset. Rental equipment is depreciated over its estimated
useful life to its estimated residual value on a straight-line basis,
which ranges from 4 to 5 years.
Rental equipment includes units transferred from inventory and
excludes units transferred to inventory when the rental equipment
becomes available for sale.
Property, plant and equipment
Property, plant and equipment are recorded at cost less accumulated
depreciation. Cost includes all expenditures directly attributable
to the acquisition of the asset. Assets are depreciated over
their estimated useful lives based on the following methods and
annual rates:
Asset
Method
Rate
Buildings
Equipment and vehicles
Computer hardware
Furniture and fixtures
Leasehold improvements
declining balance
declining balance
straight-line
declining balance
straight-line
5% – 10%
20% – 30%
3 – 5 years
10% – 20%
over the
remaining
terms of
the leases
Leases
As a lessee
The Corporation leases properties for its branch network, certain
vehicles, machinery and IT equipment. At the commencement of
the lease, the Corporation recognizes a right-of-use asset and a
corresponding lease liability.
Lease liabilities are initially measured at the present value of the
remaining lease payments discounted using the implicit interest
rate in the lease or, if that rate is not readily determinable, the
Corporation’s incremental borrowing rate. Lease payments over the
estimated lease term included in the measurement of the lease
liability comprise of: fixed payments, adjusted for any lease incentives
receivable, variable payments that are based on an index or a rate,
amounts expected to be payable under residual value guarantees,
the exercise price of a purchase option if the lessee is reasonably
certain to exercise that option, and payments of penalties for
early termination of a lease unless the Corporation is reasonably
certain not to terminate early. Not included in the balance of lease
liabilities are short-term leases (defined as leases with a lease
term of 12 months or less), leases of low-value assets and variable
lease payments not linked to an index, which are all expensed as
incurred in the consolidated statements of earnings. Lease liabilities
are subsequently measured by increasing the carrying amount to
reflect interest on the lease liability (using the effective interest rate
method) and by reducing the carrying amount to reflect the lease
payments made.
Right-of-use assets at inception include the initial measurement
of the corresponding lease liability, lease payments made at or
before the commencement date and any initial direct costs. Right-
of-use assets are subsequently measured at cost less accumulated
depreciation and impairment losses. Depreciation of right-of-
use assets is recorded in selling and administrative expenses.
Depreciation is recorded on a straight-line basis over the lease term,
unless the lease transfers ownership of the underlying asset to the
Corporation by the end of the lease term, in which case depreciation
is recorded from the commencement date to the end of the useful
life of the underlying asset.
52 Wajax 2023 Annual Report
52 Wajax 2023 Annual Report
The Corporation remeasures the lease liability (and makes a
corresponding adjustment to the related right-of-use asset) if there is
a change in the future lease payments, a change in the Corporation’s
estimate of the amounts expected to be payable or if the Corporation
changes its assessments of whether it will exercise a purchase,
renewal, or termination option.
As a lessor
When the Corporation acts as lessor, it determines at lease
commencement whether each lease is a finance lease or an
operating lease. To classify each lease, the Corporation makes an
overall assessment of whether the lease transfers to the lessee
substantially all of the risks and rewards of ownership incidental to
ownership of the underlying asset. If this is the case, then the lease
is a finance lease; if not, then it is an operating lease. As part of
this assessment, the Corporation considers certain indicators such
as whether the lease is for the major part of the economic life of
the asset.
Operating leases
The Corporation rents equipment to customers under rental
agreements with terms of up to 5 years. The rentals have been
assessed and classified as operating leases. Revenue is presented
as equipment rental revenue and recognized evenly over the term of
the rental agreement.
Finance leases
The Corporation subleases certain equipment to customers. The
Corporation assesses and classifies its subleases as finance leases,
and therefore derecognizes the right-of-use assets relating to the
respective head leases, recognizes lease receivables equal to the net
investment in the subleases, and retains the previously recognized
lease liabilities in its capacity as lessee.
Goodwill and intangible assets
Goodwill arising in a business combination is recognized as an
asset at the date that control is acquired. Goodwill and indefinite
life intangible assets are subsequently measured at cost less
accumulated impairment losses. Goodwill and indefinite life
intangible assets are allocated to cash-generating units (“CGUs”)
that are expected to benefit from the synergies of the acquisition.
Product distribution rights and brands represent the fair value
attributed to these rights and brands at the time of acquisition
and are classified as indefinite life intangible assets because the
Corporation is generally able to renew these rights and brands with
minimal cost of renewal.
Customer relationships and vendor relationships are amortized on
a straight-line basis over their useful lives which range from 4 to 12
years. Computer application software is classified as an intangible
asset and is amortized on a straight-line basis over the useful life
ranging from 1 to 15 years.
Impairment
Property, plant and equipment, rental equipment, right-of-use
assets and definite life intangible assets are reviewed at the end
of each period to determine if any indicators of impairment exist.
If an indicator of impairment is identified, an impairment test is
performed comparing its recoverable amounts to its carrying value.
An impairment loss would be recognized as the amount by which the
asset’s carrying amount exceeds its recoverable amount. Where the
asset does not generate cash flows that are independent of other
assets, impairment is considered for the CGU or group of CGUs to
which the asset belongs.
Goodwill and indefinite life intangible assets are tested for
impairment at least annually or whenever events or changes in
circumstances indicate that their carrying amount may not be
Notes to Consolidated Financial Statements
recoverable. To test for impairment, the Corporation compares the
carrying values of its goodwill and indefinite life intangibles to their
recoverable amounts. Recoverable amount is the higher of value
in use or fair value less costs of disposal, if the fair value can be
readily determined. The value in use is the present value of future
cash flows using a pre-tax discount rate that reflects the time value
of money and the risk specific to the assets. The fair value less costs
of disposal is determined either by an adjusted net asset-based
approach or by the present value of future cash flows from a market
participant perspective. Any impairment of goodwill or indefinite life
intangible assets would be recorded as a charge against earnings.
A CGU is the smallest identifiable group of assets that generates
cash inflows that are largely independent of the cash inflows from
other assets or groups of assets. For the purpose of impairment
testing the CGUs are grouped at the level at which it is monitored,
which is at the consolidated Corporation level. As a result, goodwill
and intangible assets impairment has been tested for impairment
using the cash flows generated by the consolidated operations of
the Corporation.
Financial assets measured at amortized cost are assessed for
impairment at the end of each reporting period and a loss allowance
is measured by estimating the lifetime expected credit losses
(“ECL”). The Corporation uses the simplified approach to determine
ECL on trade and other receivables, using a provision matrix based
on historical credit loss experiences adjusted to reflect information
about current economic conditions and forecasts of future economic
conditions to estimate lifetime ECL. The ECL models applied to
other financial assets and contract assets also require judgement,
assumptions and estimations on changes in credit risks, forecasts
of future economic conditions and historical information on the
credit quality of the financial asset. Impairment losses are recorded
in selling and administrative expenses with the carrying amount
of the financial asset reduced through the use of impairment
allowance accounts.
Cash and bank indebtedness
Cash and bank indebtedness includes cash on hand, demand
deposits, bank overdrafts and outstanding cheques. The Corporation
considers bank indebtedness to be an integral part of the
Corporation’s cash management. Cash and bank indebtedness are
offset and the net amount presented in the consolidated statements
of financial position to the extent that there is a right to set off and a
practice of net settlement.
Borrowing costs
Borrowing costs directly attributable to the acquisition or construction
of a qualifying asset are capitalized, until those assets are
substantially ready for their intended use. Qualifying assets are those
that take a substantial period of time to prepare for their intended
use. All other borrowing costs are recognized in finance costs in the
period in which they are incurred.
Finance costs
Finance costs are comprised of interest on the Corporation’s long-
term debt and debentures, interest on lease liabilities, and interest
income on lease receivables, and are net of any borrowing costs
that have been capitalized. Transaction costs directly attributable
to the acquisition or amendment of long-term debt or debentures
are deferred and amortized to finance costs over the term of the
related long-term debt or debentures using the effective interest rate
method. Deferred financing costs reduce the carrying amount of the
related long-term debt or debentures.
Derivative financial instruments and hedge accounting
The Corporation uses derivative financial instruments in the
management of: a) its foreign currency exposures related to certain
inventory purchases and customer sales commitments, b) its
interest rate risk related to its variable rate debt, and c) its equity
price risk related to certain share-based compensation plans. The
Corporation’s policy is to not utilize derivative financial instruments
for trading or speculative purposes. Where the Corporation intends
to apply hedge accounting it formally documents the relationship
between the derivative and the risk being hedged, as well as the
risk management objective and strategy for undertaking the hedge
transaction. The documentation links the derivative to a specific
asset or liability or to specific firm commitments or forecasted
transactions. The Corporation also assesses, at the hedge’s
inception and at least quarterly whether the hedge is effective in
offsetting changes in fair values or cash flows of the risk being
hedged. Should a hedge become ineffective, hedge accounting
will be discontinued prospectively. All derivative instruments are
recorded in the consolidated statements of financial position at
fair value. All changes in fair value are recorded in earnings unless
hedge accounting is applied, in which case the effective portion of
changes in fair value of the hedging instrument are recorded in other
comprehensive income. If the cash flow hedge of a firm commitment
or forecasted transaction results in the recognition of a non-financial
asset or liability, then, at the time the asset or liability is recognized,
the associated gains or losses on the derivative that had previously
been recognized in other comprehensive income are included in the
initial measurement of the asset or liability.
Share-based compensation plans
The fair value of share-based compensation plan rights is based
on the trading price of a Wajax Corporation common share on
the Toronto Stock Exchange (“TSX”) or a Monte Carlo simulation.
Compensation expense for share-settled plans is based upon the
fair value of the rights at the date of grant and is charged to selling
and administrative expenses on a straight-line basis over the
vesting period, with an offsetting adjustment to contributed surplus.
Compensation expense for cash-settled plans varies with the price of
the Corporation’s shares and is charged to selling and administrative
expenses, recognized over the vesting period with an offset to
accounts payable and accrued liabilities.
Employee benefits
The Corporation has defined contribution pension plans for most
of its employees. The cost of the defined contribution plans is
recognized in earnings based on the contributions required to be
made each year.
The Corporation also has defined benefit plans closed to new
members, covering certain of its former employees, and with only
inactive members remaining. The benefits are based on years of
service and pensionable earnings. Defined benefit plan obligations
were accrued as the members rendered the services necessary
to earn the pension benefits. The Corporation has adopted the
following policies:
The cost of pension benefits earned by plan members is actuarially
determined using the projected unit credit method for defined
benefit plans and management’s best estimate of retirement ages
of deferred vested pensioners.
For purposes of calculating expected return on plan assets, those
assets are valued at fair value.
The charge to earnings for the defined benefit plans is split
between an operating cost and a finance charge. The finance
charge represents the net interest cost on the defined benefit
obligation net of the expected return on plan assets and is
included in selling and administrative expenses.
Actuarial gains and losses are recognized in full in other
comprehensive income in the year in which they occur.
Wajax 2023 Annual Report 53
Wajax 2023 Annual Report 53
Notes to Consolidated Financial Statements Income taxes
Polyphase Engineered Controls (1977) Ltd. (“Polyphase”)
Income tax expense comprises current and deferred taxes. Current
and deferred taxes are recognized in earnings except to the extent
that they relate to a business combination or to items recognized
directly in equity or in other comprehensive income.
Current tax is the expected taxes payable or receivable on the taxable
income or loss for the year, using tax rates enacted or substantively
enacted at the reporting date, and any adjustment to income taxes
payable in respect of previous years.
Deferred tax is recognized in respect of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes.
Deferred tax is measured at the tax rates that are expected to
be applied to temporary differences when they reverse, based on
the laws that have been enacted or substantively enacted by the
reporting date.
A deferred tax asset is recognized for unused tax losses and
deductible temporary differences to the extent that it is probable
that future taxable profits will be available against which they can be
utilized. Deferred tax assets are reviewed at each reporting date and
are reduced to the extent that it is no longer probable that the related
tax benefit will be realized.
4. Change in Accounting Policies
During the year, the Corporation did not adopt any new accounting
standards or amendments that had an impact on the Corporation’s
consolidated financial statements.
Accounting standards and amendments issued but not yet adopted
Amendments to IAS 1, Presentation of Financial Statements
(effective January 1, 2024) clarify the classification of liabilities
as current or non-current. For the purposes of non-current
classification, the amendments remove the requirement for a
right to defer settlement of a liability for at least twelve months
to be unconditional. Instead, such a right must have substance
and exist at the end of the reporting period in order to qualify for
non-current classification. Management does not expect that this
amendment will have an impact on the Corporation’s consolidated
financial statements.
5. Business Acquisitions
Beta Fluid Power Ltd. and Beta Industrial Ltd. (“Beta”)
On September 1, 2023, the Corporation acquired all of the issued
and outstanding shares of Sault Ste. Marie, Ontario-based Beta,
a supplier of hydraulic and pneumatic equipment for use in the
industrial, mining and construction sectors, and a provider of related
maintenance, repair and replacement services. The shares of Beta
were acquired for total cash consideration of $8,489, subject to
post-closing adjustments and the result of a three-year performance-
based earnout. As at December 31, 2023, $5,289 was paid in
cash ($5,200 net of cash acquired of $89), $1,200 was a holdback
subject to certain customary conditions and recorded as a payable
to the seller, and $2,000 was the estimated fair value of a three-
year performance-based earnout and recorded as a contingent
consideration liability. The contingent consideration has a possible
range of nil to $2,000, depending on Beta’s financial performance
during the three years after acquisition, and is payable in annual
installments over the three year period. Refer to Notes 13 and 18
for further details on contingent consideration. Tangible net assets
acquired and goodwill recognized upon acquisition were $2,110 and
$6,379, respectively. Final valuations of certain items are not yet
complete. Therefore, the purchase price allocation is preliminary and
subject to adjustment on completion of the valuation process.
On July 4, 2023, the Corporation acquired all of the issued and
outstanding shares of Calgary, Alberta-based Polyphase. Polyphase
specializes in producing custom electrical and instrumentation
equipment. The acquisition of Polyphase expands the Corporation’s
electrical solutions portfolio.
The acquisition was accounted for as a business combination
using the acquisition method whereby the net assets acquired
were recorded at fair value. Valuations of certain items are not yet
complete, due to the timing of the acquisition and the inherent
complexity associated with valuations. Therefore, the purchase price
allocation is preliminary and subject to adjustment on completion of
the valuation process.
The following table summarizes the acquisition-date fair value of the
consideration transferred, the recognized amounts of the identifiable
assets acquired and liabilities assumed, and the resulting value
of goodwill:
Consideration transferred:
Cash consideration transferred
Cash consideration payable
Fair value of contingent consideration – payable in cash
$ 15,813
873
6,554
Fair value of assets and liabilities recognized:
Cash
Trade and other receivables
Contract assets
Inventory
Prepaid expenses
Property, plant and equipment
Right-of-use assets
Accounts payable and accrued liabilities
Income taxes payable
Lease liabilities
Deferred tax liabilities
$ 23,240
$
13
4,858
3,866
2,190
91
48
2,598
(1,099)
(2,591)
(2,598)
(2,892)
Tangible net assets acquired
$
4,484
Intangible assets
Goodwill
12,524
6,232
$ 23,240
The shares of Polyphase were acquired for total cash consideration
of $23,240, subject to the result of a three-year performance-
based earnout. As at December 31, 2023, $15,813 was paid in
cash ($15,800 net of cash acquired of $13), $873 was payable
to the seller, and $6,554 was the preliminary estimated fair value
of a three-year performance-based earnout and recorded as a
contingent consideration liability. The contingent consideration has
a possible range of nil to an uncapped maximum payout, depending
on Polyphase’s financial performance during the three years
after acquisition, and is payable in annual installments over the
three year period. Refer to Notes 13 and 18 for further details on
contingent consideration.
The trade and other receivables acquired of $4,858 are the gross
contractual amounts receivable, as all contractual cash flows are
expected to be collectible.
The Corporation acquired intangible assets as part of the acquisition,
in the form of customer relationships. The fair value of customer
relationships was determined using an income approach: the multi-
period excess earnings method. The valuation method was based on
the discounted cash flows expected to be derived from the ownership
of the asset.
54 Wajax 2023 Annual Report
54 Wajax 2023 Annual Report
Notes to Consolidated Financial Statements
Goodwill arising from the acquisition is attributable mainly to the
ability to leverage the assembled workforce, industry knowledge,
future growth and the potential to realize synergies in the form of
cost savings. The goodwill recorded on the acquisition of Polyphase is
not deductible for income tax purposes.
Polyphase revenues of $11,833 and net earnings of $1,826 were
included in the consolidated statements of earnings from the date of
acquisition to December 31, 2023.
accounts receivable on behalf of the financial institution. As at
December 31, 2023, the Corporation continues to service and collect
$6,060 in accounts receivable on behalf of this financial institution
(December 31, 2022 – nil). Net proceeds from this program are
classified in operating activities in the consolidated statements of
cash flows.
The Corporation’s exposure to credit and currency risks related to
trade and other receivables is disclosed in Note 18.
The acquisition-related costs included in selling and administrative
expenses in the consolidated statements of earnings were
not material.
Pro-forma disclosures
Had the acquisition of Polyphase occurred on January 1, 2023,
the consolidated revenue would have increased by approximately
$12,924 and the consolidated net earnings would have increased
by approximately $2,487 for the year ended December 31, 2023.
This pro-forma supplemental information is based on estimates
and assumptions which are believed to be reasonable. The pro-
forma supplemental information is not necessarily indicative of the
Corporation’s consolidated financial results in future periods or the
results that would have been realized had the business acquisition
been completed at the beginning of the period presented. The pro-
forma supplemental information excludes business integration costs
and opportunities.
Division of Powell Canada Inc. (“Powell Valve”)
On June 30, 2022, the Corporation acquired the net operating assets
of an Alberta-based division of Powell Canada Inc. (“Powell Valve”)
specializing in valve sales, service and support. The net operating
assets of Powell Valve were acquired for total cash consideration of
$5,209, all of which was paid as at December 31, 2023. Tangible
net assets acquired and goodwill recognized upon acquisition were
$4,406 and $803, respectively. As at December 31, 2023, the
purchase price allocation was considered final.
7. Contract Assets and Liabilities
The following table provides information about contract assets and
contract liabilities from contracts with customers:
Contract assets
Contract liabilities
$ 69,520 $ 57,890
19,511
21,891
December 31
2023
2022
The contract assets relate to the Corporation’s rights to consideration
for work completed but not billed at the reporting date, primarily on
product support and engineered repair services (“ERS”) revenue.
The contract assets are transferred to receivables when billed
upon completion of significant milestones. The contract liabilities
relate to the advance billing or advance consideration received from
customers, primarily on equipment sales, industrial parts sales, and
ERS revenue, for which revenue is recognized when control transfers
to the customer.
Revenue recognized in 2023 that was included in the contract liability
balance at the beginning of the year was $16,421 (2022 – $18,820).
8. Inventory
The Corporation’s inventory balance consists of the following:
6. Trade and Other Receivables
The Corporation’s trade and other receivables consist of trade
accounts receivable from customers and other accounts receivable,
generally from suppliers for warranty and rebates. Trade and other
receivables are comprised of the following:
Equipment
Parts
Work-in-process
Total inventory
December 31
2023
2022
$ 329,010 $ 207,958
228,456
25,750
272,073
29,848
$ 630,931 $ 462,164
December 31
2023
2022
Trade accounts receivable
Less: allowance for credit losses
$ 278,394 $ 272,174
(1,182)
(3,639)
Net trade accounts receivable
Other receivables
$ 274,755 $ 270,992
36,063
34,324
Total trade and other receivables
$ 309,079 $ 307,055
The Corporation has an agreement with a financial institution to sell
100% of selected trade accounts receivable on a recurring, non-
recourse basis. Under the agreement, up to $20,000 of accounts
receivable may be sold to the financial institution and can remain
outstanding at any point in time. After the sale, the Corporation does
not retain any interests in the accounts receivable and removes
them from its consolidated statement of financial position, however
the Corporation continues to service and collect the outstanding
All amounts shown are net of obsolescence provisions of $28,271
(December 31, 2022 – $27,796).
For the year ended December 31, 2023, $4,463 (2022 – $815) was
recorded in cost of sales for the write-down of inventory to estimated
net realizable value.
For the year ended December 31, 2023, the Corporation recognized
$1,395,296 (2022 – $1,293,130) of inventory as an expense which
is included in cost of sales.
As at December 31, 2023, the Corporation has included $51,658
(December 31, 2022 – $28,566) in equipment inventory related
to short-term rental contracts, the majority of which is expected to
convert to equipment sales within a six to twelve month period.
Substantially all of the Corporation’s inventory is pledged as security
for the bank credit facility (Note 17).
Wajax 2023 Annual Report 55
Wajax 2023 Annual Report 55
Notes to Consolidated Financial Statements
9. Property, Plant and Equipment and Rental Equipment
Cost
December 31, 2022
Additions
Transfer from leased to
owned at end of lease
Other transfers
Disposals
Business acquisitions
Land and
buildings
Equipment
and vehicles
Computer
hardware
Furniture
and fixtures
Leasehold
improvements
Property,
plant and
equipment
Rental
equipment
$
23,329 $
176
76,687 $
6,725
5,311 $
64
10,705 $
314
13,794 $ 129,826 $
1,691
8,970
99,646
20,936
—
—
(380)
—
3,261
(749)
(7,338)
395
—
—
(1,263)
5
—
—
(1,404)
23
—
749
(1,517)
2
3,261
—
(11,902)
425
—
—
(15,106)
—
December 31, 2023
$
23,125 $
78,981 $
4,117 $
9,638 $
14,719 $ 130,580 $ 105,476
Accumulated depreciation
December 31, 2022
Charge for the year
Transfer from leased to
owned at end of lease
Other transfers
Disposals
$
12,486 $
299
51,347 $
5,936
4,420 $
512
8,045 $
539
9,424 $
985
85,722 $
8,271
60,246
14,304
—
—
(259)
2,754
8
(6,815)
—
—
(1,262)
—
—
(1,265)
—
(8)
(1,395)
2,754
—
(10,996)
—
—
(11,564)
December 31, 2023
$
12,526 $
53,230 $
3,670 $
7,319 $
9,006 $
85,751 $
62,986
Carrying amount
December 31, 2023
$
10,599 $
25,751 $
447 $
2,319 $
5,713 $
44,829 $
42,490
Cost
December 31, 2021
Additions
Transfer from leased to
owned at end of lease
Other transfers
Disposals
Business acquisitions
$
22,653 $
676
67,956 $
6,779
5,189 $
309
10,683 $
275
12,899 $ 119,380 $ 100,222
10,898
9,224
1,185
—
—
—
—
2,218
38
(3,306)
3,002
—
—
(290)
103
—
—
(346)
93
—
—
(341)
51
2,218
38
(4,283)
3,249
—
(38)
(11,436)
—
December 31, 2022
$
23,329 $
76,687 $
5,311 $
10,705 $
13,794 $ 129,826 $
99,646
Accumulated depreciation
December 31, 2021
Charge for the year
Transfer from leased to
owned at end of lease
Other transfers
Disposals
$
12,140 $
346
46,915 $
5,328
4,180 $
529
7,801 $
556
8,776 $
690
79,812 $
7,449
54,472
14,689
—
—
—
1,765
29
(2,690)
—
—
(289)
—
—
(312)
—
—
(42)
1,765
29
(3,333)
—
(29)
(8,886)
December 31, 2022
$
12,486 $
51,347 $
4,420 $
8,045 $
9,424 $
85,722 $
60,246
Carrying amount
December 31, 2022
$
10,843 $
25,340 $
891 $
2,660 $
4,370 $
44,104 $
39,400
All property, plant and equipment except land and buildings have been pledged as security for bank debt (Note 17).
56 Wajax 2023 Annual Report
56 Wajax 2023 Annual Report
Notes to Consolidated Financial Statements
10. Right-of-Use Assets
Cost
December 31, 2022
Additions
Disposals
Disposal to lease receivables upon sublease
Transfer from leased to owned at end of lease
Business acquisitions
Properties
Vehicles
Computer
hardware
Equipment
Total
$ 179,100 $
32,169 $
26,317
(1,393)
—
—
4,126
8,451
(665)
—
(3,261)
—
5,806 $
4,862
—
—
—
—
9,012
33 $ 217,108
48,642
(2,091)
(9,012)
(3,261)
4,126
(33)
(9,012)
—
—
December 31, 2023
$ 208,150 $
36,694 $
10,668 $
— $ 255,512
Accumulated depreciation
December 31, 2022
Charge for the year
Disposals
Transfer from leased to owned at end of lease
December 31, 2023
Carrying amount
December 31, 2023
Cost
December 31, 2021
Additions
Disposals
Disposal to lease receivables upon sublease
Transfer from leased to owned at end of lease
Business acquisitions
$
74,993 $
22,252
(1,028)
—
17,461 $
5,453
(441)
(2,754)
1,914 $
1,830
—
—
20 $
13
(33)
—
94,388
29,548
(1,502)
(2,754)
$
96,217 $
19,719 $
3,744 $
— $ 119,680
$ 111,933 $
16,975 $
6,924 $
— $ 135,832
$ 170,045 $
30,083 $
8,113
113
—
—
829
6,294
(1,990)
—
(2,218)
—
3,718 $
2,088
—
—
—
—
33 $ 203,879
22,434
(1,877)
(5,939)
(2,218)
829
5,939
—
(5,939)
—
—
December 31, 2022
$ 179,100 $
32,169 $
5,806 $
33 $ 217,108
Accumulated depreciation
December 31, 2021
Charge for the year
Disposals
Transfer from leased to owned at end of lease
December 31, 2022
Carrying amount
December 31, 2022
$
53,259 $
21,621
113
—
15,141 $
4,829
(744)
(1,765)
966 $
948
—
—
10 $
10
—
—
69,376
27,408
(631)
(1,765)
$
74,993 $
17,461 $
1,914 $
20 $
94,388
$ 104,107 $
14,708 $
3,892 $
13 $ 122,720
11. Goodwill and Intangible Assets
The Corporation performed its annual impairment test of its goodwill
and indefinite life intangibles as at December 31, 2023. The
recoverable amount of the CGU group was estimated based on the
present value of the future cash flows expected to be derived from
the CGU group (value in use). This approach requires assumptions
about revenue growth rates, EBITDA margins, tax rates, discount
rates and the level of working capital required to support the
business. The after-tax cash flows from operations are based on
historical results, the Corporation’s projected 2024 operating budget
and its long-term strategic plan. To prepare these calculations,
the forecasts were extrapolated beyond the five year period at the
estimated long-term inflation rate of 2% (2022 – 2%). The Corporation
assumed a discount rate of approximately 11.3% (2022 – 10.7%)
which is based on the Corporation’s pre-tax weighted average cost
of capital.
The tax rates applied to the cash flow projections were based on the
effective tax rate of the Corporation of approximately 26.1% (2022 –
25.0%). Tax assumptions are sensitive to changes in tax laws as well
as assumptions about the jurisdictions in which profits are earned. It
is possible that actual tax rates could differ from those assumed.
The Corporation concluded as at December 31, 2023 that no
impairment existed in either the goodwill or the intangible assets
with an indefinite life, as the recoverable amount of the CGU group
exceeded its carrying value.
The Corporation did not reverse any impairment losses for definite
life intangible assets for the years ended December 31, 2023 and
December 31, 2022.
Wajax 2023 Annual Report 57
Wajax 2023 Annual Report 57
Notes to Consolidated Financial Statements
Cost
December 31, 2022
Additions
Disposals
Business acquisitions (Note 5)
December 31, 2023
Accumulated amortization
December 31, 2022
Charge for the year
Disposals
December 31, 2023
Carrying amount
December 31, 2023
Cost
December 31, 2021
Additions
Disposals
Business acquisitions
December 31, 2022
Accumulated amortization
December 31, 2021
Charge for the year
Disposals
December 31, 2022
Carrying amount
December 31, 2022
Customer
Product relationships/
Vendor
relationships
distribution
Goodwill rights/Brands
Software
Total
$ 103,330 $
—
—
12,610
18,236 $
—
—
—
47,500 $
—
—
12,500
18,130 $ 187,196
876
(42)
25,134
876
(42)
24
$ 115,940 $
18,236 $
60,000 $
18,988 $ 213,164
$
$
— $
—
—
— $
— $
—
—
13,577 $
5,246
—
2,905 $
1,202
(42)
16,482
6,448
(42)
— $
18,823 $
4,065 $
22,888
$ 115,940 $
18,236 $
41,177 $
14,923 $ 190,276
$
98,846 $
—
—
4,484
18,236 $
—
—
—
47,500 $
—
—
—
17,500 $ 182,082
844
(214)
4,484
844
(214)
—
$ 103,330 $
18,236 $
47,500 $
18,130 $ 187,196
$
$
— $
—
—
— $
— $
—
—
8,693 $
4,884
—
2,014 $
1,053
(162)
10,707
5,937
(162)
— $
13,577 $
2,905 $
16,482
$ 103,330 $
18,236 $
33,923 $
15,225 $ 170,714
Amortization of intangible assets is charged to selling and administrative expenses.
12. Accounts Payable and Accrued Liabilities
13. Provisions and Contingencies
Accounts payable and accrued liabilities are comprised of
the following:
Trade payables
Deferred rental income
Contingent consideration
liability – current
Payroll, bonuses and incentives
Accrued liabilities
December 31
2023
2022
$ 270,849 $ 308,237
1,130
918
2,997
52,657
79,669
—
50,509
63,958
Accounts payable and accrued liabilities $ 407,090 $ 423,834
Warranties Environmental
Other
Total
Provisions,
December 31,
2022
New provisions
expensed
Utilized
Provisions,
December 31,
2023
$
961 $ 1,025 $ 1,268 $ 3,254
943
(1,180)
630
(1,313)
478
(9)
2,051
(2,502)
$
724 $
342 $ 1,737 $ 2,803
Current portion
Non-current portion
$
724 $
—
266 $ 1,737 $ 2,727
76
76
—
Total
$
724 $
342 $ 1,737 $ 2,803
58 Wajax 2023 Annual Report
58 Wajax 2023 Annual Report
Notes to Consolidated Financial Statements
Contingencies
In the ordinary course of business, the Corporation is contingently
liable for various amounts that could arise from litigation,
environmental matters or other sources. The Corporation does not
expect the resolution of these matters to have a materially adverse
effect on its financial position or results of operations. Provisions
have been made in these consolidated financial statements when the
liability is expected to result in an outflow of economic resources, and
where the obligation can be reliably estimated.
14. Lease Liabilities and Lease Receivables
As lessee
The Corporation leases properties for its branch network, certain
vehicles, machinery and IT equipment.
The change in lease liabilities is as follows:
For the year ended December 31
Note
2023
2022
As lessor
Operating leases
The Corporation rents equipment to customers under rental
agreements with terms of up to 5 years. The rentals have been
assessed and classified as operating leases. Revenue is presented
as equipment rental revenue and recognized evenly over the term of
the rental agreement. The future minimum lease payments receivable
under the agreements are as follows:
December 31
Less than one year
Between one and five years
$
9,221 $
13,019
2023
2022
7,899
7,162
Future minimum lease
payments receivable
$ 22,240 $ 15,061
$ 158,446 $ 168,138
Finance leases
Balance at beginning of year
Changes from operating
cash flows
Finance costs paid
on lease liabilities
Changes from
financing cash flows
Payment of lease liabilities
Other changes
Business acquisitions
Interest expense
23
New leases, net of disposals
(8,871)
(7,852)
(35,450)
(31,960)
4,126
8,871
48,252
829
7,852
21,439
Balance at end of year
$ 175,374 $ 158,446
Current portion
Non-current portion
$ 34,407 $ 31,347
$ 140,967 $ 127,099
Not included in the balance of lease liabilities are short-term leases,
leases of low-value assets and variable lease payments not linked to
an index. Variable lease payments, lease payments associated with
short-term leases and leases of low-value assets are expensed as
incurred in the consolidated statements of earnings.
For the year ended December 31
Note
2023
2022
Expense related to
short-term leases
Expense related to low value
assets, excluding short-term
leases of low value assets
Expense related to variable
lease payments not included
in the measurement
of lease liabilities
Payment of lease liabilities
Interest paid on lease liabilities
$
109 $
105
386
63
3,815
35,450
8,871
3,259
31,960
7,852
23
Total outflow for leases
$ 48,631 $ 43,239
The maturity analysis of contractual undiscounted cash flows of lease
obligations is as follows:
December 31
2023
2022
Within one year
Between one and three years
Between three and five years
More than five years
$ 49,225 $ 44,812
66,907
47,249
62,429
80,996
51,717
56,570
Total undiscounted lease obligations $ 238,508 $ 221,397
The Corporation subleases certain equipment to customers. The
Corporation assesses and classifies its subleases as finances
leases, and therefore derecognizes the right-of-use assets relating
to the respective head leases, recognizes lease receivables equal
to the net investment in the subleases, and retains the previously
recognized lease liabilities in its capacity as lessee. The following
table sets out a maturity analysis of lease receivables, showing the
undiscounted lease payments to be received after the reporting date:
December 31
Less than one year
Between one and five years
$
6,547 $
11,172
2023
2022
4,551
7,927
Total undiscounted lease
payments receivable
$ 17,719 $ 12,478
Unearned finance income
(1,222)
(579)
Lease receivables
Current portion
Non-current portion
$ 16,497 $ 11,899
$
5,896 $
$ 10,601 $
4,170
7,729
15. Employee Benefits
The Corporation sponsors four pension plans: Wajax Limited Defined
Contribution Pension Plan (the “Employees’ Plan”) which is a defined
contribution plan (“DC”), Simplified Pension Plan (the “SP Plan”)
which is a defined contribution plan for employees in the province of
Quebec, and two defined benefit plans: the Pension Plan for Executive
Employees of Wajax Limited (the “Executive Plan”) and the Wajax
Limited Supplemental Executive Retirement Plan (the “SERP”).
The Corporation also contributes to several union sponsored multi-
employer pension plans for a small number of employees. Two of
these are target benefit plans but they are accounted for as defined
contribution plans since the Corporation has no involvement in the
management of these plans and does not have sufficient information
to account for the plans as defined benefit plans.
The Corporation uses actuarial reports prepared by independent
actuaries for funding and accounting purposes and measures
its defined benefit obligations and the fair value of plan assets
for accounting purposes as at December 31 of each year. These
actuarial assumptions include discount rates, mortality rates, and
inflation. While management believes that the actuarial assumptions
are appropriate, any significant changes to those used would affect
the statements of financial position and statements of earnings.
Wajax 2023 Annual Report 59
Wajax 2023 Annual Report 59
Notes to Consolidated Financial Statements
The previous actuarial valuation for the Executive Plan for funding
purposes was as at January 1, 2021, and the next valuation is as at
January 1, 2024.
The following significant actuarial assumptions were used to
determine the net defined benefit plan cost and the defined benefit
plan obligations:
December 31
2023
2022
Discount rate – at beginning of year
(to determine plan expenses)
Discount rate – at end of year
(to determine defined benefit obligation)
Increases in pensionable earnings
Rate of inflation
5.3%
4.7%
—%
2.0%
3.1%
5.3%
—%
2.0%
The plan expenses recognized in earnings are as follows:
Defined contribution plans
Current service cost
Defined benefit plans
Administration expenses
SERP line of credit fees
Interest cost on defined
benefit obligation
Interest income on plan assets
2023
2022
$ 11,178 $
9,819
9
115
556
(214)
$
466 $
77
175
423
(174)
501
Total plan expense
recognized in earnings
$ 11,644 $ 10,320
Assumptions regarding future mortality rates were based on 87% of
the rates of the 2014 Public Sector Canadian Pensioner’s Mortality
Table for the Executive Plan and SERP.
Plan assets for the defined contribution plans are invested according
to the directions of the plan members. Plan assets for defined benefit
plans are invested in the following major categories of plan assets as
a percentage of total plan assets:
Fixed Income
Foreign Equities
Executive Plan
December 31
2023
39.8%
60.2%
2022
40.1%
59.9%
100.0%
100.0%
The history of adjustments on the defined benefit plans recognized
in other comprehensive income for the current and prior year are
as follows:
Actuarial loss (gain) on defined
benefit obligation arising from:
Experience adjustments
Financial assumption changes
Actuarial (gain) loss on asset return
Total remeasurement loss (gain)
2023
2022
$
— $
$
677
677 $
(241)
2
(2,702)
(2,700)
1,050
recognized in OCI, pre-tax
$
436 $
(1,650)
Total cash payments
Total cash payments for employee future benefits for 2023,
consisting of cash contributed by the Corporation to its funded
pension plans, cash payments directly to beneficiaries for its
unfunded pension plans, and cash contributed to its defined
contribution plans was $11,596 (2022 – $10,258).
The Corporation expects to contribute $413 to the defined benefit
pension plans in the year ended December 31, 2024, which relates
entirely to expected benefit payments relating to the SERP as this
plan is not funded.
Of the amounts recognized in earnings, $4,504 (2022 – $4,122) is
included in cost of sales and $7,140 (2022 – $6,198) is included in
selling and administrative expenses.
The amounts recognized in other comprehensive income are
as follows:
2023
2022
Actuarial loss (gain)
Deferred tax (recovery) expense
$
436 $
(115)
(1,650)
434
Amount recognized in other
$
comprehensive income
Cumulative actuarial losses, net of tax $
321 $
1,849 $
(1,216)
1,528
Information about the Corporation’s defined benefit pension plans, in
aggregate, is as follows:
Present value of benefit obligation
2023
2022
Present value of benefit
obligation, beginning of year
Interest cost on defined
benefit obligation
Actuarial loss (gain)
Benefits paid
Present value of benefit
obligation, end of year
Fair value of plan assets
Fair value of plan assets,
beginning of year
Interest income
Return on plan assets
(excluding interest income)
Employer contributions
Benefits paid
Administration expenses
$ 10,935 $ 14,183
556
677
(843)
423
(2,700)
(971)
$ 11,325 $ 10,935
2023
2022
$
4,280 $
214
5,765
170
276
418
(843)
(44)
(1,114)
439
(971)
(9)
Fair value of plan assets, end of year $
4,301 $
4,280
Funded Status
Fair value of plan assets, end of year $
Present value of benefit
obligation, end of year
2023
2022
4,301 $
4,280
(11,325)
(10,935)
Plan deficit
$
(7,024) $
(6,655)
60 Wajax 2023 Annual Report
60 Wajax 2023 Annual Report
Notes to Consolidated Financial Statements
The accrued benefit liability is included in the Corporation’s statement
of financial position as follows:
Movements in the debentures balance are as follows:
For the year ended December 31
2023
2022
Employee benefits
Plan deficit
2023
2022
(7,024)
(6,655)
Balance at beginning of period
Amortization of deferred financing costs
$ 55,762 $ 55,223
539
578
$
(7,024) $
(6,655)
Balance at end of period
$ 56,340 $ 55,762
The present value of the benefit obligation includes a benefit
obligation of $4,855 (2022 – $4,766) related to the SERP that is
not funded. This obligation is secured by a letter of credit of $3,574
(2022 – $5,731).
Finance costs on the debentures for the year ended
December 31, 2023 were $3,999 (2022 – $3,959).
17. Long-Term Debt
Sensitivity analysis
The following sensitivity analysis is hypothetical and should be used
with caution. The sensitivities of the key assumption have been
calculated independently of any changes in other assumptions.
Actual experience may result in changes in a number of assumptions
simultaneously. Changes in one factor may result in changes
in another, which could amplify or reduce the impact of such
assumptions.
A 1% increase in discount rate would result in a $984 (2022 – $939)
decrease to the defined benefit obligation as at December 31, 2023.
A 1% decrease in discount rate would result in a $1,178 (2022 –
$1,105) increase to the defined benefit obligation.
16. Debentures
Senior Unsecured Debentures – 6%, due January 15, 2025
In December 2019, the Corporation issued $57,000 in
unsecured subordinated debentures with a term of five years due
January 15, 2025. These debentures bear a fixed interest rate of
6.00% per annum, payable semi-annually on January 15 and July 15
of each year.
On or after January 15, 2023, but prior to January 15, 2024, the
debentures are redeemable, in whole at any time or in part from
time to time at the option of the Corporation at a price equal to
103% of the principal amount redeemed plus accrued and unpaid
interest. On or after January 15, 2024, but prior to the maturity date
of January 15, 2025, the debentures are redeemable at a price
equal to their principal amount plus accrued and unpaid interest. As
at December 31, 2023, the Corporation has not redeemed any of
the debentures.
On redemption or at maturity on January 15, 2025, the Corporation
has the option to repay the debentures in either cash or freely
tradable voting shares of the Corporation.
The debentures are classified as a financial liability and are initially
recorded at fair value net of transaction costs. The debentures are
measured subsequently at amortized cost using the effective interest
method over the life of the debentures.
The following balances were outstanding:
Debentures issued
Deferred financing costs, net of
accumulated amortization
December 31
2023
2022
$ 57,000 $ 57,000
(660)
(1,238)
Total debentures
$ 56,340 $ 55,762
As at December 31, 2023, Wajax had a $400,000 credit limit on its
bank credit facility, composed of a $50,000 non-revolving term facility
and a $350,000 revolving term facility, maturing on October 1, 2027.
As at December 31, 2023, borrowings under the bank credit facility
were subject to floating rates of interest at margins over Canadian
dollar bankers’ acceptance yields, U.S. dollar SOFR rates or prime.
Margins on the facility depended on the Corporation’s leverage
ratio at the time of borrowing and ranged between 1.5% and 3.0%
for Canadian dollar bankers’ acceptances and U.S. dollar SOFR
borrowings, and 0.5% and 2.0% for prime rate borrowings.
Borrowing capacity under the bank credit facility is dependent
upon the level of the Corporation’s inventory on hand and the
outstanding trade accounts receivable. As at December 31, 2023,
borrowing capacity under the bank credit facility was $400,000
(December 31, 2022 – $400,000), of which $126,602
(December 31, 2022 – $308,851) was accessible to the
Corporation. In addition, the bank credit facility contains customary
restrictive covenants including limitations on the declaration of cash
dividends and an interest coverage maintenance ratio, all of which
were met as at December 31, 2023.
Subsequent to December 31, 2023, the Corporation amended its
bank credit facility. See Note 29 Subsequent Events for details of
the amendments.
The following balances were outstanding:
December 31
2023
2022
Bank credit facility
Non-revolving term portion
Revolving term portion
Deferred financing costs, net of
accumulated amortization
$ 50,000 $ 50,000
34,955
218,561
$ 268,561 $ 84,955
(806)
(1,353)
Total long-term debt
$ 267,755 $ 83,602
The Corporation had $4,837 (December 31, 2022 – $6,194) letters
of credit outstanding at the end of the year. Finance costs on long-
term debt amounted to $13,627 (2022 – $5,886).
Movements in the long-term debt balance are as follows:
For the year ended December 31
2023
2022
Balance at beginning of period
Changes from financing cash flows
Net proceeds (repayments)
of borrowings
Transaction costs related
to borrowings
Other changes
Amortization of deferred
financing costs
$ 83,602 $ 98,218
183,606
(15,045)
—
(278)
547
707
Balance at end of period
$ 267,755 $ 83,602
Wajax 2023 Annual Report 61
Wajax 2023 Annual Report 61
Notes to Consolidated Financial Statements
18. Financial Instruments and
Financial Risk Management
The Corporation uses the following fair value hierarchy for
determining and disclosing the fair value of financial instruments:
Level 1 – unadjusted quoted prices in active markets for identical
assets or liabilities.
Level 2 – other techniques for which all inputs that have a significant
effect on the recorded fair value are observable, either
directly or indirectly.
Level 3 – techniques that use inputs that have a significant effect on
the recorded fair value that are not based on observable
market data.
The Corporation categorizes its financial instruments as follows:
Financial assets measured
at amortized cost:
Trade and other receivables
Contract assets
Lease receivables
Financial liabilities measured
at amortized cost:
Bank indebtedness
Accounts payable and accrued
liabilities (excluding contingent
consideration)
Provisions
Dividends payable
Other liabilities (excluding
contingent consideration)
Debentures
Long-term debt
December 31
2023
2022
$ 309,079 $ 307,055
57,890
11,899
69,520
16,497
1,397
5,230
404,093
2,803
7,151
423,834
3,254
5,368
3,262
56,340
267,755
2,669
55,762
83,602
Financial assets measured at fair value:
Derivative financial assets
11,308
14,294
Financial liabilities measured at fair value:
Accounts payable and accrued
liabilities – contingent consideration
2,997
—
Other liabilities –
contingent consideration
Derivative financial liabilities
6,432
5,602
672
3,418
The Corporation measures financial assets and financial liabilities at
amortized cost, except for derivative financial assets/liabilities and
contingent consideration from acquisitions, which are measured at
fair value. Changes in fair value are recognized in the consolidated
statements of earnings except for changes in fair value related to
derivative financial assets/liabilities which are effectively designated
as hedging instruments which are recognized in other comprehensive
income. The Corporation’s derivative financial assets/liabilities
are held with major Canadian chartered banks and are deemed
to be Level 2 financial instruments. The Corporation’s contingent
consideration liabilities are Level 3 financial instruments, and
are valued using either a discounted cash flow model or a Monte
Carlo simulation model. The Monte Carlo simulation uses various
assumptions including EBITDA forecast, discount rate, and volatility
factor. The fair value of long-term debt approximates its recorded
value due to its floating interest rate. The fair value of lease
receivables approximates its carrying value. The fair value of the
debentures can be estimated based on the trading price of the
debentures, which takes into account the Corporation’s own credit
62 Wajax 2023 Annual Report
62 Wajax 2023 Annual Report
risk. At December 31, 2023, the Corporation has estimated the
fair value of its debentures to be $56,516 (December 31, 2022 –
$56,715). The fair values of all other financial assets and liabilities
approximate their recorded values due to the short-term maturities of
these instruments.
The Corporation, through its financial assets and liabilities, has
exposure to the following risks from its use of financial instruments:
credit risk, liquidity risk, and market risk (consisting of currency
risk, interest rate risk and equity price risk). The following analysis
provides a measurement of these risks as at December 31, 2023
and 2022:
Credit risk
The Corporation is exposed to credit risk with respect to its trade and
other receivables. This risk is mitigated by the Corporation’s large
customer base which covers many business sectors across Canada.
The Corporation follows a program of credit evaluations of customers
and limits the amount of credit extended when deemed necessary.
The Corporation’s trade and other receivables consist of trade
accounts receivable from customers and other accounts receivable,
generally from suppliers for warranty and rebates.
The aging of the trade accounts receivable is as follows:
December 31
2023
2022
Current
Less than 60 days overdue
More than 60 days overdue
$ 130,124 $ 148,704
106,560
16,910
120,711
27,559
Total trade accounts receivable
$ 278,394 $ 272,174
The carrying amounts of accounts receivable represent the maximum
credit exposure.
The Corporation maintains an allowance for expected credit losses
taking into account past experience of collecting payments as well as
observable changes in and forecasts of future economic conditions
that correlate with default on receivables. Any such losses to date
have been within management’s expectations. Movement of the
allowance for credit losses is as follows:
For the year ended December 31
Opening balance
Charge (reversals), net
Utilization
$
2023
1,182 $
3,413
(956)
2022
1,080
624
(522)
Closing balance
$
3,639 $
1,182
The Corporation is also exposed to the risk of non-performance by
counterparties to foreign exchange forwards, interest rate swaps
and total return swaps. These counterparties are large financial
institutions that maintain high short-term and long-term credit
ratings. To date, no such counterparty has failed to meet its financial
obligations to the Corporation. Management does not believe there is
a significant risk of non-performance by these counterparties and will
continue to monitor the credit risk of these counterparties.
Liquidity risk
Liquidity risk is the risk that the Corporation will encounter difficulty
in meeting obligations associated with its financial liabilities as
they become due. At December 31, 2023, the Corporation had
borrowed $268,561 (2022 – $84,955) from the bank credit facility
that matures on October 1, 2027. The Corporation issued $4,837
(2022 – $6,194) of letters of credit for a total utilization of $273,398
(2022 – $91,149) of its $400,000 (2022 – $400,000) bank credit
facility and had not utilized any (2022 – nil) of its $25,000 (2022 –
$25,000) interest bearing equipment financing facilities.
Notes to Consolidated Financial Statements
In December 2019, the Corporation issued $57,000 in
unsecured subordinated debentures with a term of five years due
January 15, 2025. These debentures bear a fixed interest rate
of 6.00% per annum, payable semi-annually on January 15 and
July 15 of each year, commencing July 15, 2020. On redemption or
at maturity on January 15, 2025, the Corporation has the option to
repay the debentures in either cash or freely tradable voting shares of
the Corporation.
The Corporation’s $400,000 bank credit facility, of which $126,602
was unutilized at the end of the year, along with the additional
$25,000 of equipment financing available under the bank credit
facility, is deemed to be sufficient to meet the Corporation’s short-
term normal course working capital and maintenance capital
requirements and certain strategic investments. However, the
Corporation may be required to access the equity or debt markets to
fund significant acquisitions.
Subsequent to December 31, 2023, the Corporation amended its
bank credit facility. See Note 29 Subsequent Events for details of
the amendments.
Contractual obligations are as follows:
Accounts payable and accrued liabilities
Undiscounted lease obligations
Long-term debt
Debentures
Total
Market risk
Market risk is the risk from changes in market prices, such
as changes in foreign exchange rates, interest rates, and the
Corporation’s share price which will affect the Corporation’s
earnings as well as the value of the financial instruments
held and cash-settled share-based liabilities outstanding. The
exposure to these risks is managed through the use of various
derivative instruments.
a) Currency risk
Certain of the Corporation’s sales to customers and purchases
from vendors are exposed to fluctuations in the U.S. dollar
(“USD”) and the Euro (“EUR”). When considered appropriate, the
Corporation purchases foreign exchange forwards for USD and EUR
as a means of mitigating this risk. A change in foreign currency
relative to the Canadian dollar would not have a material impact
on the Corporation’s unhedged foreign currency-denominated sales
to customers along with the associated receivables, or on the
Corporation’s unhedged foreign currency-denominated purchases
from vendors along with the associated payables. The Corporation
will periodically institute price increases to offset the negative impact
of foreign exchange rate increases and volatility on imported goods
to ensure margins are not eroded. However, a sudden strengthening
of the U.S. dollar relative to the Canadian dollar can have a negative
impact mainly on parts margins in the short term prior to price
increases taking effect.
The Corporation maintains a hedging policy whereby significant
transactional currency risks are typically identified and hedged.
b) Interest rate risk
The Corporation’s borrowing costs are impacted by changes in
interest rates. The Corporation’s tolerance to interest rate risk
decreases as the Corporation’s leverage ratio increases and
interest coverage ratio decreases. To manage this risk prudently,
guideline percentages of floating interest rate debt decrease as the
Corporation’s leverage ratio increases. The Corporation has entered
into interest rate swap contracts primarily to minimize exposure to
interest rate fluctuations on its variable rate debt.
Total
< 1
year
1 – 3
years
3 – 5
years
$ 407,090 $ 407,090 $
— $
— $
238,508
268,561
57,000
49,225
—
—
80,996
—
57,000
51,717
268,561
—
After
5 years
—
56,570
—
—
$ 971,159 $ 456,315 $ 137,996 $ 320,278 $
56,570
A 1.00 percentage point change in interest rates on the average
amount outstanding under the bank credit facility for 2023 would
result in a change to earnings before income taxes of approximately
$2,585 for the year.
c) Equity price risk
The Corporation’s total return swaps are exposed to fluctuations
in its share price. A $1.00 per share decrease in the share price
would result in a decrease in earnings before income taxes of $399
relating to the total return swaps. An increase of $1.00 per share
would result in an equal and opposite effect on earnings before
income taxes.
Derivative financial instruments and hedges
The Corporation enters into interest rate swaps to hedge the risk
associated with interest rate fluctuations on its variable rate debt.
Interest rate swaps are initially recognized on the date the derivative
contracts are entered into, and are subsequently re-measured at
their fair values. The method of recognizing the resulting gain or
loss depends on whether the derivative is designated as a hedging
instrument. In a cash flow hedging relationship, the effective portion
of the change in the fair value of the hedging derivative, net of taxes,
is recognized in other comprehensive income while the ineffective
portion is recognized within net earnings. Amounts in accumulated
other comprehensive income are reclassified to net earnings in the
periods when the hedged item affects profit or loss.
During the year, the Corporation discontinued its application of
hedge accounting relating to its interest rate swaps. The derivatives
continue to be carried at fair value in the consolidated statements
of financial position with changes in fair value from the date of
discontinuance recognized in selling and administrative expenses
in the consolidated statements of earnings. Amounts previously
accumulated in accumulated other comprehensive income prior to
discontinuance will be amortized to net earnings over the remaining
term of the underlying forecasted interest payments. For the year
ended December 31, 2023, the Corporation recognized a loss of
$1,237 (2022 – gain of $5,298) in the consolidated statements of
earnings associated with its interest rate swaps and a loss of $678
(2022 – gain of $4,522), net of tax in other comprehensive income.
Wajax 2023 Annual Report 63
Wajax 2023 Annual Report 63
Notes to Consolidated Financial Statements
The Corporation’s interest rate swaps outstanding are summarized
as follows:
Weighted
Average
Notional Interest
Rate
Amount
Maturity
As at December 31, 2023: $ 150,000
As at December 31, 2022: $ 150,000
2.32% October 2026 to
October 2027
2.32% October 2026 to
October 2027
The Corporation enters into short-term foreign exchange forwards
to hedge the exchange risk associated with the cost of certain
inbound inventory and certain foreign currency-denominated sales
to customers along with the associated receivables as part of its
normal course of business. Foreign exchange forwards are initially
recognized on the date the derivative contract is entered into and
are subsequently re-measured at their fair values. The method
of recognizing the resulting gain or loss depends on whether the
derivative is designated as a hedging instrument. In a cash flow
hedging relationship, the effective portion of the change in the
fair value of the hedging derivative, net of taxes, is recognized
in other comprehensive income while the ineffective portion is
recognized within net earnings. Amounts in accumulated other
comprehensive income are reclassified to net earnings in the periods
when the hedged item affects profit or loss. For the year ended
December 31, 2023, the Corporation recognized a loss of $1,304
(2022 – loss of $174) associated with its foreign exchange forwards
in the consolidated statements of earnings, and a loss of $3,312
(2022 – gain of $1,410), net of tax in other comprehensive income.
The Corporation’s contracts to buy and sell foreign currencies are
summarized as follows:
December 31, 2023
Notional
Amount
Average
Exchange
Rate
Purchase contracts US$ 195,235
1.3499
€ 7,257
1.4642
Maturity
January 2024 to
November 2025
January 2024 to
October 2024
Sales contracts
US$ 77,866
€ 1,648
1.3451
1.4777
January 2024 to
December 2025
January 2024 to
September 2024
market are recognized in earnings in the period in which they arise.
As at December 31, 2023, the Corporation’s total return swaps
cover 399,000 of the Corporation’s underlying common shares
(December 31, 2022 – 402,000), and expire between March 2024
and March 2026. During the year, the Corporation settled a total
return swap contract for 143,000 shares (2022 – 130,000 shares),
resulting in a cash receipt of $1,396 (2022 – cash receipt of $874).
For the year ended December 31, 2023, the Corporation recognized
a gain of $4,180 (2022 – loss of $1,903) associated with its total
return swaps.
Derivative financial assets consist of:
Interest rate swaps
Foreign exchange forwards
Total return swaps
$
December 31
2023
6,203 $
2,262
2,843
2022
8,360
5,166
768
Total derivative financial assets
$ 11,308 $ 14,294
Current portion
Non-current portion
$
$
5,632 $
5,676 $
9,202
5,092
Derivative financial liabilities consist of:
Foreign exchange forwards
Total return swaps
$
December 31
2023
5,602 $
—
2022
2,709
709
Total derivative financial liabilities
$
5,602 $
3,418
Current portion
Non-current portion
$
$
4,081 $
1,521 $
2,458
960
Movements in the net derivative financial assets (liabilities) balance
are as follows:
For the year ended December 31
2023
Opening net derivative financial asset $ 10,876 $
Gain recognized in net earnings
(Loss) gain recognized in
other comprehensive income
Cash received on settlement
of total return swaps
(5,413)
(1,396)
1,639
2022
429
3,221
8,100
(874)
Ending net derivative financial asset
$
5,706 $ 10,876
The balance in accumulated other comprehensive income is
comprised of the fair value of the Corporation’s various foreign
exchange forwards where hedge accounting is applied, and the
remaining unamortized fair value of the Corporation’s interest
rate swaps where hedge accounting was applied, prior to
discontinuance of hedge accounting. These accumulated amounts
will be continuously released to the consolidated statements
of earnings within gross profit and selling and administrative
expenses, respectively.
During the periods presented and cumulatively to date, changes
in counterparty credit risk have not significantly contributed to the
overall changes in the fair value of these derivative instruments.
December 31, 2022
Notional
Amount
Average
Exchange
Rate
Purchase contracts US$ 135,601
1.3185
€ 400
1.3825
Sales contracts
US$ 37,481
1.2955
€ 570
1.3517
Maturity
January 2023 to
August 2024
August 2023 to
December 2023
January 2023 to
May 2024
April 2023 to
June 2023
The Corporation has certain total return swaps to hedge the
exposure associated with increases in its share price on its
outstanding restricted share units (“RSUs”). The Corporation
does not apply hedge accounting to these relationships and as
such, gains and losses arising from marking these derivatives to
64 Wajax 2023 Annual Report
64 Wajax 2023 Annual Report
Notes to Consolidated Financial Statements
19. Share Capital And Earnings Per Share
Dividends declared
The Corporation is authorized to issue an unlimited number of no
par value common shares and an unlimited number of no par value
preferred shares. Each common share entitles the holder of record
to one vote at all meetings of shareholders. All issued common
shares are fully paid. There were no preferred shares outstanding as
at December 31, 2023 (December 31, 2022 – nil). Each common
share represents an equal beneficial interest in any distributions of
the Corporation and in the net assets of the Corporation in the event
of its termination or winding-up.
Number of
Common
Shares
Amount
Issued and outstanding,
December 31, 2022
Common shares issued to settle
share-based compensation plans
21,602,836 $ 208,763
207,575
2,574
Issued and outstanding,
December 31, 2023
Shares held in trust,
December 31, 2022
Released for settlement of certain
share-based compensation plans
Purchased for future settlement
of certain share-based
compensation plans
Shares held in trust,
December 31, 2023
21,810,411 $ 211,337
(131,734) $
(1,208)
74,149
680
(83,280)
(805)
During the year, the Corporation declared cash dividends of $1.32
per share or $28,445 (2022 – dividends of $1.00 per share or
$21,426). As at December 31, 2023, the Corporation had $7,151
(December 31, 2022 – $5,368) dividends outstanding which were
paid on January 3, 2024.
Earnings per share
The following table sets forth the computation of basic and diluted
earnings per share:
For the year ended December 31
2023
2022
Numerator for basic and
diluted earnings per share:
– net earnings
Denominator for basic
earnings per share:
– weighted average shares,
net of shares held in trust
Denominator for diluted
earnings per share:
– weighted average shares,
net of shares held in trust
– effect of dilutive share rights
Denominator for diluted
earnings per share
Basic earnings per share
$ 80,990 $ 72,408
21,509,250
21,423,140
21,509,250
762,378
21,423,140
773,778
22,271,628
22,196,918
$
$
3.77 $
3.64 $
3.38
3.26
(140,865) $
(1,333)
Diluted earnings per share
Issued and outstanding, net of shares
held in trust, December 31, 2023 21,669,546 $ 210,004
Number of
Common
Shares
Amount
Issued and outstanding,
December 31, 2021
Common shares issued to settle
share-based compensation plans
21,531,428 $ 207,805
71,408
958
For the year, the calculation above excludes nil anti-dilutive share
rights (2022 – 6,924).
20. Share-Based Compensation Plans
The Corporation has four share-based compensation plans: the
Wajax Share Ownership Plan (the “SOP”), the Directors’ Deferred
Share Unit Plan (the “DDSUP”), the Mid-Term Incentive Plan for
Senior Executives (the “MTIP”) and the Deferred Share Unit Plan (the
“DSUP”). The following table provides the share-based compensation
expense for awards under all plans:
21,602,836 $ 208,763
For the year ended December 31
2023
2022
(122,105) $
(1,100)
Treasury share rights plans
SOP equity-settled
DDSUP equity-settled
$
90 $
1,037
96
812
23,915
216
Total treasury share
Issued and outstanding,
December 31, 2022
Shares held in trust,
December 31, 2021
Released for settlement of certain
share-based compensation plans
Purchased for future settlement
of certain share-based
compensation plans
Shares held in trust,
December 31, 2022
(33,544)
(324)
(131,734) $
(1,208)
Issued and outstanding, net of shares
held in trust, December 31, 2022 21,471,102 $ 207,555
During the year, the Corporation purchased 83,280 (2022 – 33,544)
common shares on the open market through Employee Benefit Plan
Trusts for the future settlement of certain share-based compensation
plans. The cash consideration paid for the purchase was $2,000
(2022 – $800), the reduction in share capital was $805 (2022 –
$324) and the premium charged to retained earnings was $1,195
(2022 – $476).
rights plans expense
$
1,127 $
908
Market-purchased share rights plans
MTIP equity-settled
DSUP equity-settled
$
1,677 $
5
1,550
22
Total market-purchased
share rights plans expense
Cash-settled rights plans
MTIP cash-settled
DSUP cash-settled
$
1,682 $
1,572
$
6,512 $
127
2,986
(31)
Total cash-settled rights plans expense $
6,639 $
2,955
Total share-based
compensation expense
$
9,448 $
5,435
Wajax 2023 Annual Report 65
Wajax 2023 Annual Report 65
Notes to Consolidated Financial Statements
a) Treasury share rights plans
Under the SOP and the DDSUP, rights are issued to the participants
which are settled by issuing Wajax Corporation shares for no cash
consideration. Rights under the SOP vest over three years, while
rights under the DDSUP vest immediately. Vested rights are settled
when the participant is no longer employed by the Corporation or one
of its subsidiary entities or no longer sits on its Board. Whenever
dividends are paid on the Corporation’s shares, additional rights
(dividend equivalents) with a value equal to the dividends are credited
to the participants’ accounts.
The following rights under these plans are outstanding:
Number
of rights
Fair value
at time
of grant
Outstanding at December 31, 2022
Grants – new grants
– dividend equivalents
Settlements
539,614 $
39,258
27,991
(207,575)
7,355
1,037
—
(2,574)
Outstanding at December 31, 2023
399,288 $
5,818
At December 31, 2023, 386,584 share rights were vested
(December 31, 2022 – 512,023 share rights were vested).
The outstanding aggregate number of shares issuable to satisfy
entitlements under these plans is as follows:
Approved by shareholders
Exercised to date
Rights outstanding
Number
of Shares
1,300,000
(638,377)
(399,288)
Available for future grants at December 31, 2023
262,335
b) Market-purchased share rights plans
The MTIP plan consists of cash-settled restricted share units
(“RSUs”) and equity-settled performance share units (“PSUs”),
and the equity-settled DSUP plan consists of deferred share
units (“DSUs”).
Market-purchased share rights plans consist of PSUs under the
MTIP plan and DSUs, which vest over three years and are settled
in common shares of the Corporation on a one-for-one basis. DSUs
are only subject to time-vesting, whereas PSUs are also subject to
performance vesting. PSUs are comprised of two types:
Total shareholder return (“TSR”) PSUs: TSR PSUs vest dependent
upon the attainment of a TSR market condition. Such performance
vesting criteria result in a performance vesting factor that ranges
from 0% to 200% depending on the Corporation’s TSR relative to a
pre-selected group of peers.
Return on net assets (“RONA”) PSUs or Return on invested
capital (“ROIC”) PSUs: RONA PSUs are applicable for grants prior
to 2022 and vest dependent upon the attainment of a target level
of return on net assets. ROIC PSUs are applicable from 2022
onward and vest dependent upon the attainment of a target level
of return on invested capital. Such performance vesting criteria
results in a performance vesting factor that ranges from 0% to
150% depending on the level of RONA or ROIC attained.
These plans are settled through shares purchased on the open
market by the employee benefit plan trust, subject to the attainment
of their vesting conditions. PSUs are settled at the end of the vesting
period, and the number of shares remitted to the participant upon
settlement is equal to the number of PSUs awarded multiplied by
the performance vesting factor less shares withheld to satisfy the
participant’s withholding tax requirement. DSUs are settled when the
participant is no longer employed by the Corporation or one of its
subsidiary entities. Whenever dividends are paid on the Corporation’s
shares, additional rights with a value equal to the dividends are
credited to the participants’ accounts with the same vesting
conditions as the original PSUs and DSUs.
The following rights under these plans are outstanding:
Outstanding at December 31, 2022
Grants – new grants
– dividend equivalents
Forfeitures
Settlements
Number
of rights
Fair value
at time
of grant
304,862 $
111,587
20,860
(22,210)
(158,477)
5,477
2,495
—
(528)
(1,635)
Outstanding at December 31, 2023
256,622 $
5,809
At December 31, 2023, 33,796 outstanding rights were vested
(December 31, 2022 – 32,099 rights were vested). All vested rights
are DSUs.
c) Cash-settled rights plans
Cash-settled rights plans consist of MTIP RSUs and cash-settled
DSUs. Compensation expense varies with the price of the
Corporation’s shares and is recognized over the three year vesting
period. RSUs are settled at the end of the vesting period, whereas
DSUs are settled when the participant is no longer employed by the
Corporation or one of its subsidiary entities. Whenever dividends
are paid on the Corporation’s shares, additional rights with a value
equal to the dividends are credited to the participants’ accounts
with the same vesting conditions as the original rights. The value
of the payout is equal to the number of rights awarded including
earned dividend equivalents, multiplied by the volume weighted
average share price at the time of vesting. At December 31, 2023,
the carrying amount of the liabilities for these plans was $8,077
(December 31, 2022 – $6,193).
The following rights under these plans are outstanding:
Outstanding at December 31, 2022
Grants – new grants
– dividend equivalents
Forfeitures
Settlements
Outstanding at December 31, 2023
Number
of rights
530,176
138,972
24,849
(17,009)
(197,842)
479,146
At December 31, 2023, 11,816 outstanding rights were vested
(December 31, 2022 – 11,223 rights were vested).
66 Wajax 2023 Annual Report
66 Wajax 2023 Annual Report
Notes to Consolidated Financial Statements
21. Revenue
a) Disaggregation of revenue
23. Finance Costs
Finance costs are comprised of the following:
In the following table, revenue is disaggregated by revenue type:
For the year ended December 31
Note
2023
For the year ended December 31
2023
2022
Equipment sales
Product support
Industrial parts
Engineered repair services (ERS)
$ 607,089 $ 628,551
483,926
535,783
275,455
543,278
605,072
354,286
Revenue from contracts with customers $ 2,109,725 $ 1,923,715
39,107
Equipment rental
44,953
Total
$ 2,154,678 $ 1,962,822
As at December 31, 2023, the Corporation has included $17,057
(2022 – $21,193) in equipment sales related to short-term rental
contracts, the majority of which are expected to convert to equipment
sales within a six to twelve month period.
b) Transaction price allocated to the
remaining performance obligations
The following table includes revenue expected to be recognized in
the future related to performance obligations that are unsatisfied (or
partially unsatisfied) at the reporting date:
2024
2025
2026
Total
Equipment sales
ERS
$ 6,982 $
14,610
777 $
1,431
— $ 7,759
16,042
1
Total
$ 21,592 $ 2,208 $
1 $ 23,801
The Corporation has applied the practical expedient which permits
the Corporation to not disclose information about remaining
performance obligations that have original expected durations of one
year or less.
22. Employee Costs
Employee costs recorded in cost of sales and selling and
administrative expenses for the Corporation during the year
amounted to:
Wages and salaries,
including bonuses
Other benefits
Pension costs – defined
contribution plans
Pension costs – defined
benefit plans
Share-based
compensation expense
Note
2023
2022
$ 326,735 $ 303,396
38,013
45,430
15
15
20
11,178
9,819
466
501
9,448
5,435
$ 393,257 $ 357,164
Finance costs on long-term debt
Finance costs on debentures
Interest expense on
lease liabilities
Interest income on
lease receivables
17 $ 13,627 $
16
3,999
2022
5,886
3,959
14
8,871
7,852
(630)
(352)
Finance costs
$ 25,867 $ 17,345
24. Income Tax Expense
Income tax expense comprises current and deferred tax as follows:
For the year ended December 31
2023
2022
Current income tax expense
Deferred income tax expense (recovery)
$ 28,107 $ 35,055
(10,951)
547
Income tax expense
$ 28,654 $ 24,104
The calculation of current tax is based on a combined federal and
provincial statutory income tax rate of 26.0% (2022 – 26.0%).
Deferred tax assets and liabilities are measured at tax rates that
are expected to apply to the period when the asset is realized or
the liability is settled. Deferred tax assets and liabilities have been
measured using an expected average combined statutory income tax
rate of 26.0% based on the tax rates in years when the temporary
differences are expected to reverse.
The reconciliation of income taxes at Canadian statutory rates to the
reported income tax expense is as follows:
For the year ended December 31
Combined statutory income tax rate
Expected income tax
expense at statutory rates
Non-deductible expenses
Changes in estimates
related to prior years
Other
2023
26.0%
2022
26.0%
$ 28,507 $ 25,093
556
896
(559)
(190)
(1,260)
(285)
Income tax expense
$ 28,654 $ 24,104
Wajax 2023 Annual Report 67
Wajax 2023 Annual Report 67
Notes to Consolidated Financial Statements
Recognized deferred tax assets and liabilities and the movement of temporary differences during the year are as follows:
Property, plant and equipment
Finance leases
Intangible assets
Goodwill
Accrued liabilities
Provisions
Other liabilities
Derivative instruments
Employee benefits
Deferred financing costs
Tax loss carryforwards
Net deferred tax liabilities
Property, plant and equipment
Finance leases
Intangible assets
Goodwill
Accrued liabilities
Provisions
Derivative instruments
Employee benefits
Deferred financing costs
Partnership income not currently taxable
Tax loss carryforwards
December 31,
2022
Recognized in
profit or loss
Recognized
in other
comprehensive
income
Recognized
on business
acquisitions
December 31,
2023
$
(10,447) $
6,265
(11,582)
(643)
8,436
822
—
(3,197)
1,730
(276)
353
(960) $
(180)
1,207
(154)
(646)
(79)
63
(66)
(17)
49
236
— $
—
—
—
—
—
—
1,619
115
—
—
(101) $
—
(2,875)
—
—
—
—
—
—
—
—
(11,508)
6,085
(13,250)
(797)
7,790
743
63
(1,644)
1,828
(227)
589
$
(8,539) $
(547) $
1,734 $
(2,976) $
(10,328)
December 31,
2021
Recognized in
profit or loss
Recognized
in other
comprehensive
income
Recognized
on business
acquisitions
December 31,
2022
$
(10,506) $
6,412
(12,709)
(450)
7,045
662
(237)
2,114
(325)
(8,993)
298
59 $
(147)
1,127
(193)
1,391
160
(593)
50
49
8,993
55
— $
—
—
—
—
—
(2,367)
(434)
—
—
—
— $
—
—
—
—
—
—
—
—
—
—
(10,447)
6,265
(11,582)
(643)
8,436
822
(3,197)
1,730
(276)
—
353
Net deferred tax liabilities
$
(16,689) $
10,951 $
(2,801) $
— $
(8,539)
Deferred tax assets of $1,035 (2022 – $1,035) have not been recognized in respect of deductible temporary differences related to land
because it is not probable that future taxable profit will be available against which the Corporation can use the benefits therefrom.
25. Changes in Non-Cash Operating Working Capital
Management of capital
As part of the Corporation’s renewed long-term strategy, its capital
structure will continue to be managed such that it maintains a
prudent leverage ratio, defined below, in order to provide funds
available to invest in strategic growth initiatives, provide liquidity
in times of economic uncertainty and to allow for the payment of
dividends. In addition, the Corporation’s tolerance to interest rate risk
decreases/increases as the Corporation’s leverage ratio increases/
decreases. The Corporation’s objective is to manage its working
capital and normal-course capital investment programs within a
leverage range of 1.5 to 2.0 times and to fund those programs
through operating cash flow and its bank credit facilities as required.
There may be instances whereby the Corporation is willing to maintain
a leverage ratio outside of this range during changes in economic
cycles. The Corporation may also maintain a leverage ratio above the
stated range as a result of investment in significant acquisitions and
may fund those acquisitions using its bank credit facilities and other
debt instruments in accordance with the Corporation’s expectations
of total future cash flows, financing costs and other factors.
The net change in non-cash operating working capital comprises
the following:
For the year ended December 31
2023
2022
$
Trade and other receivables
Contract assets
Inventory
Deposits on inventory
Prepaid expenses
Accounts payable and accrued liabilities
Provisions
Contract liabilities
3,699 $
(7,415)
(166,023)
(106)
(2,713)
(79,968)
(20,915)
(72,875)
(1,473)
(3,218)
(29,936) 115,897
(2,389)
(34)
(451)
2,380
Total
$ (200,565) $
(64,975)
26. Capital Management
Objective
The Corporation defines its capital as the total of its shareholders’
equity, long-term debt, and debentures (“interest bearing debt”). The
Corporation’s objective when managing capital is to have a capital
structure and capacity to support the Corporation’s operations and
strategic objectives set by the Board of Directors.
68 Wajax 2023 Annual Report
68 Wajax 2023 Annual Report
Notes to Consolidated Financial Statements
The leverage ratio at the end of a particular quarter is defined as
debt divided by trailing 12-month pro-forma adjusted EBITDA. Debt
includes bank indebtedness, debentures, total long-term debt, and
letters of credit, net of cash. Pro-forma adjusted EBITDA used in
calculating the leverage ratio under the bank credit agreement is
calculated as earnings before facility closure, restructuring, and
other related costs, gains recorded on the sale of properties, non-
cash losses and gains on mark to market of derivative instruments,
change in fair value of contingent consideration, finance costs,
income tax expense and depreciation and amortization, adjusted for
the EBITDA of business acquisitions made during the period as if
they were made at the beginning of the trailing 12-month period, and
adjusted for payment of lease liabilities pursuant to the terms of the
bank credit facility.
Although management currently believes the Corporation has
adequate debt capacity, the Corporation may have to access
the equity or debt markets, or temporarily reduce dividends to
accommodate any shortfalls in the Corporation’s credit facilities or
significant growth capital requirements.
There were no significant changes in the Corporation’s approach to
capital management during the year.
Restrictions on capital
The interest bearing debt includes a $400,000 bank credit facility
which expires on October 1, 2027. The bank credit facility contains
the following key covenants:
Borrowing capacity is dependent upon the level of the Corporation’s
inventory on hand and the outstanding trade accounts receivable
(“borrowing base”).
The Corporation will be restricted from the declaration of cash
dividends in the event the Corporation’s leverage ratio, as defined
under the bank credit facility, exceeds 4.0 times.
An interest coverage maintenance ratio.
At December 31, 2023, the Corporation was in compliance with
all covenants and there were no restrictions on the declaration of
quarterly cash dividends.
Under the terms of the $400,000 bank credit facility, the Corporation
is permitted to have additional interest bearing debt of $25,000. As
a result, the Corporation has up to $25,000 of demand inventory
equipment financing capacity with two lenders. The equipment notes
payable under the facilities bear floating rates of interest at margins
over Canadian dollar bankers’ acceptance yields and U.S. SOFR
rates. At December 31, 2023, the Corporation had not utilized any of
its interest bearing equipment financing facilities.
Subsequent to December 31, 2023, the Corporation amended its
bank credit facility. See Note 29 Subsequent Events for details of
the amendments.
27. Related Party Transactions
Balances and transactions between the Corporation and its
subsidiaries, which are related parties, have been eliminated on
consolidation and are not disclosed in this note.
The Corporation’s related party transactions consist of the
compensation of the Board of Directors and key management
personnel which is set out in the following table:
2023
2022
Salaries, bonus and other
short-term employee benefits
Pension costs – defined
contribution plans
Share-based compensation expense
$
5,778 $
4,814
280
3,514
231
2,159
Total compensation
$
9,572 $
7,204
28. Operating Segments
The Corporation’s Chief Executive Officer, who is also the Chief
Operating Decision Maker, regularly assesses the performance of,
and makes resource allocation decisions based on, the Corporation
as a whole. As a result, the Corporation has determined that it
comprises a single operating segment and therefore a single
reportable segment.
29. Subsequent Events
On January 11, 2024, the Corporation amended its senior secured
credit facility. The amendment increased the facility limit from
$400,000 to $500,000 and is now composed of a $50,000 non-
revolving term facility and a $450,000 revolving term facility. There
was no change to the maturity date of the facility. As part of the bank
credit facility amendment effective January 11, 2024, the Canadian
dollar bankers’ acceptances were replaced with the term Canadian
Overnight Repo Rate Average loan (or “CORRA”). Borrowings under
the bank credit facility bear floating rates of interest at margins over
Canadian dollar term CORRA loan yields, U.S. dollar SOFR rates or
prime. Margins on the facility continue to depend on the Corporation’s
leverage ratio at the time of borrowing. Effective January 11, 2024,
the margins range between 1.8% and 3.3% for Canadian dollar term
CORRA loans and U.S. dollar SOFR borrowings, and between 0.8%
and 2.3% for prime rate borrowings.
On March 4, 2024, the Corporation declared a first quarter 2024
dividend of $0.35 per share.
Wajax 2023 Annual Report 69
Wajax 2023 Annual Report 69
Notes to Consolidated Financial Statements
Additional Financial Information
Summary of Quarterly Data – Unaudited
(in millions of dollars, except per share data)
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2023
2022
Revenue
Net earnings
Earnings per share – Basic
Earnings per share – Diluted
Eleven Year Summary – Unaudited
$ 516.1 $ 586.2 $ 509.7 $ 542.6 $ 439.5 $ 511.2 $ 470.8 $ 541.3
16.6
0.78
0.75
17.5
0.81 $
0.79
16.1
0.75 $
0.73
23.4
1.09 $
1.05
21.7
1.01 $
0.98
18.0
0.84 $
0.81
11.1
0.52 $
0.50
29.0
1.35 $
1.31
$
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
$ 2,154.7 $ 1,962.8 $ 1,637.3 $ 1,422.6 $ 1,553.0 $ 1,481.6 $ 1,318.7 $ 1,221.9 $ 1,273.3 $ 1,451.3 $ 1,428.5
47.7
9.0
(11.0)
12.2
53.2
19.1
11.0
11.2
31.7
21.0
35.9
8.8
41.2
13.0
81.0
25.9
72.4
17.3
39.5
19.7
27.4
15.2
8.1
8.3
0.6
2.7
2.5
4.2
1.7
6.5
4.1
5.4
3.9
20.9
10.9
10.1
16.5
37.5
43.6
19.3
13.5
23.0
23.1
20.0
58.6
55.5
55.4
52.4
52.8
27.0
23.2
24.7
24.5
22.5
21.6
Per Share
Net earnings
(loss) – Basic
Dividends declared
Equity
$
3.77 $
1.32
22.90
3.38 $
1.00
20.95
2.50 $
1.00
18.21
1.58 $
1.00
16.26
1.98 $
1.00
15.83
1.82 $
1.00
14.88
1.40 $
1.00
14.08
0.55 $
1.00
14.07
(0.59) $
1.23
14.44
2.46 $
2.40
14.82
2.85
2.68
14.77
$ 560.2 $ 346.0 $ 313.5 $ 376.2 $ 404.1 $ 334.7 $ 289.7 $ 268.8 $ 302.7 $ 258.2 $ 272.7
52.3
45.8
59.4
64.1
73.7
56.9
58.1
42.5
39.4
77.0
60.4
44.8
135.8
44.1
122.7
39.6
134.5
41.4
131.7
42.1
117.1
59.0
—
43.6
—
45.7
—
46.2
—
48.7
—
49.7
—
141.0
56.3
127.1
55.8
137.6
55.2
129.2
54.6
106.4
54.1
—
—
—
—
—
—
—
—
—
—
—
—
Operating Results
Revenue
Net earnings (loss)
Finance costs
Property, plant
and equipment
expenditures – net
Rental equipment
expenditures
Depreciation and
amortization
Financial Position
Working capital
Rental equipment
Property, plant and
equipment
Right-of-use assets
Lease liabilities
excluding current
portion
Debentures
Long-term debt
excluding current
portion
Shareholders’ equity
Total assets
267.8
496.2
98.2
389.9
1,473.3 1,249.9 1,080.8
83.6
449.8
225.6
171.6
316.8
325.6
981.4 1,045.1
218.1
297.0
831.2
143.7
274.7
694.4
122.0
278.9
667.3
151.6
288.5
677.5
180.9
248.5
718.2
195.9
247.2
682.1
3,287
Other Information
Number of employees
Shares
outstanding (000s) 21,670 21,471 21,409 20,034 20,012 19,957 19,504 19,826 19,986 16,779 16,744
Price range of shares
High
Low
$ 32.57 $ 24.57 $ 29.67 $ 19.60 $ 19.95 $ 28.17 $ 25.74 $ 25.76 $ 30.93 $ 39.56 $ 46.24
29.38
19.16
2,824
16.24
2,609
2,725
2,318
2,800
2,461
28.75
13.34
14.81
15.43
3,021
17.25
2,700
2,418
13.98
18.49
4.90
2,766
70 Wajax 2023 Annual Report
Corporate Information
Shareholder Information
Transfer Agent and Registrar
For information relating to shareholdings,
dividends, lost certificates, changes of
address or estate transfers, please contact
our transfer agent:
Computershare Investor Services Inc.
100 University Avenue, 8th Floor
Toronto, ON M5J 2Y1
Telephone: 1-800-564-6253
Fax: 1-888-453-0330
Web: www.investorcentre.com/service
Auditors
KPMG LLP
Home Office
10 Diesel Drive
Toronto, ON M8W 2T8
Telephone: (905) 212-3300
Fax: (905) 212-3350
Exchange Listing
Toronto Stock Exchange
Symbol
WJX
Wajax Corporation
Share Trading Information
(January 1 – December 31, 2023)
Open
High
Low Close
Vol. of
Shares
Traded
$19.54 $32.57 $19.16 $30.27 8,704,000
Quarterly Earnings Reports
Quarterly earnings for 2024 are anticipated to
be announced after market close on May 1,
August 8 and November 4, 2024 and
March 3, 2025.
2024 Dividend Dates
Quarterly dividends are payable to
shareholders of record on or about the 15th
day of the last month in each quarter and
will generally be paid in the first week of the
following month.
Investor Information
Stuart Auld, Chief Financial Officer
Telephone: (905) 212-3300
Fax: (905) 212-3350
E-mail: ir@wajax.com
To obtain a delayed share quote, read news
releases, listen to the latest analysts’
conference call, and stay abreast of other
Corporation news, visit our website at
www.wajax.com.
Annual Meeting
Shareholders are invited to attend the
Annual Meeting of Wajax Corporation,
to be held at the Sheraton Gateway Hotel
located at the Toronto International Airport,
Ontario in the Heathrow Meeting Room,
on Thursday, May 2, 2024, at 11:00 a.m. EDT.
Vous pouvez obtenir la version française de
ce rapport en écrivant au secrétaire,
Corporation Wajax,
10 Diesel Drive,
Toronto (ON) M8W 2T8
Directors
Edward M. Barrett
Leslie Abi-karam 2, 3
Thomas M. Alford 1, 2
Douglas A. Carty 1, 2
Sylvia D. Chrominska 1, 3
A. Jane Craighead 1, 3
Ignacy P. Domagalski
David G. Smith 1, 3
Elizabeth A. Summers 1, 3
Alexander S. Taylor 2, 3
Susan Uthayakumar 1, 2
1 Member of the Audit Committee
2 Member of the Governance Committee
3 Member of the Human Resources and
Compensation Committee
Officers
Ignacy P. Domagalski
President and Chief Executive Officer
Stuart H. Auld
Chief Financial Officer
Brian Deacon
Senior Vice President, Category Management
André Dubé
Senior Vice President, Sales and Operations
Mark Edgar
Chief People Officer
Greg Abtosway
Vice President, Corporate Development
Tania Casadinho
Vice President, Corporate Controller
Cristian Rodriguez
Vice President, Safety,
Sustainability and People
Andrew W. H. Tam
General Counsel and Corporate Secretary
Wajax 2023 Annual Report 71
Locations
Fort McMurray
Prairies
Team members
Branches
Team members
Branches
103
3
865
33
Quebec
Team members
1,110
Branches
28
Customers
32,000
Employees
3,287
Locations
119
British Columbia
Ontario
Team members
Branches
Team members
Branches
254
8
755
29
Atlantic
Team members
Branches
200
18
Western Canada
Ontario
Eastern Canada
Bathurst, NB
Edmundston, NB
Moncton, NB (2)
Moncton (Dieppe), NB
Charlottetown, PEI
Dartmouth, NS (3)
Port Hawkesbury, NS
Stellarton, NS
Corner Brook, NL
Mount Pearl, NL (3)
Pasadena, NL
St. John's, NL
Wabush, NL
Belleville, ON (2)
Guelph, ON
Kapuskasing, ON
Kirkland Lake, ON
Kitchener, ON
London, ON
Mississauga, ON (3)
Ottawa, ON
Pembroke (Laurentian Valley), ON
Sarnia, ON
Sault Ste. Marie, ON (2)
Stoney Creek, ON
Sudbury, ON
Sudbury (Lively), ON (2)
Thunder Bay, ON (5)
Timmins, ON (2)
Toronto, ON
Vaughan, ON
Windsor, ON
Baie-Comeau, QC
Chambly, QC
Chicoutimi, QC
Dorval, QC
Fermont, QC
Granby, QC
Lachine, QC
L'Ancienne-Lorette, QC
Lasalle, QC
Laval, QC
Longueuil, QC
Montreal, QC (2)
Noranda, QC
Pointe-aux-Trembles, QC (3)
Québec City, QC
Rimouski, QC
Sept Iles, QC
Sherbrooke, QC
St-Felicien, QC
St-Germain-de-Grantham, QC
Temiscaming, QC
Tracy (Sorel), QC
Trois-Rivières, QC
Val d'Or, QC
Valleyfield, QC
Fort St. John, BC (2)
Kamloops, BC
Langley, BC
Nanaimo, BC
Prince George, BC (2)
Sparwood, BC
Calgary, AB (5)
Clairmont, AB
Edmonton, AB (6)
Edmonton (Acheson), AB
Fort McMurray, AB (3)
Grande Prairie, AB (3)
Lethbridge, AB
Lloydminster, AB
Medicine Hat, AB
Nisku, AB
Red Deer, AB
Rock View County, AB
Regina, SK (3)
Saskatoon, SK (3)
Flin Flon, MB
Winnipeg, MB (3)
Yellowknife, NT
72 Wajax 2023 Annual Report
10 Diesel Drive
Toronto, ON M8W 2T8
Telephone: (905) 212-3300
Fax: (905) 212-3350